What Is the Procedure for Me to Get a Rent-to-Own Home?
A rent-to-own home is a lease agreement with an option to buy. The procedure involved in entering into such an agreement is a combination of the rental and home purchase processes. In a rent-to-own situation, you as the buyer have more power to negotiate payment terms with the property owner, allowing you more freedom in your decision to make a purchase decision at the end of your lease.
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Credit Score Approval
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The rent-to-own home process begins with an examination of your financial records, including your credit history and employment status. You must have a credit score sufficient to secure the initial lease for the property as well as the financial ability to pay the remaining cost of the home at the conclusion of the lease agreement. The property owner may monitor your credit score throughout the lease process, so you should avoid making large purchases or obtaining personal loans until after you sign the agreement.
Lease Option Fee
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The lease agreement for your rent-to-own home will contain a clause detailing the option fee. This is a type of down payment on the property and usually falls between 1 and 5 percent of the purchase price. For example, if the total purchase price of the home is $100,000, your option fee would be between $1,000 and $5,000. You must pay this fee at the beginning of your rent-to-own lease agreement. The property owner credits this fee towards the purchase price of the home.
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Additional Rental Premium
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In addition to monthly rent, you also must pay a monthly rental premium, which the landlord credits towards the purchase price of the home. The amount of money you pay in addition to your rent depends on how long the lease agreement lasts and how quickly you want to own the home. If you choose not to exercise your option to purchase the rental property at the end of your lease, you lose any money you paid as a rental premium and the initial option fee. This encourages you to follow through with your intentions to purchase the home.
Examine Lease Agreement Closely
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Examine your lease agreement closely before you decide to sign. A property owner may attempt to word clauses vaguely in an attempt to easily evict you from the property while pocketing your option fee and rental premium payments. If you believe the clauses in the lease agreement are illegal, don't sign the agreement. Report the property owner to your state attorney general's office along with any evidence you have of wrongdoing, including a copy of the illegal rent-to-own lease agreement.
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