‘Rent to own’ is a term that comes up pretty frequently in the real estate business. There has always been a bit of mystery surrounding the phrase and renting to own can be a viable way of entering the housing market. However, renting to own can really get you into trouble if you don’t understand how it works. You need legal expertise so that you have a rent to own contract that protects your interests.
What you are doing (in legal speak) when you ‘rent to own’ is entering into a lease purchase agreement. These agreements allow people with limited means and/or bad credit scores to buy property. The agreement gives the tenant the opportunity to save a minimal down-payment and/or repair damaged credit in the two or three years leading up to the actual home purchase. During this period the tenant continues to live in the home until the purchase option (known as the right of first refusal) is exercised. Hopefully at that time the prospective owner has an improved credit score and is capable of arranging financing.
At the start of the agreement the renter puts down a deposit, makes monthly rent payments, and pays an additional monthly sum, to be used along with the deposit as a down-payment when the home is purchased. The minimum amount must be 5% of the purchase price, and high ratio mortgage insurance is required. If the renter can’t or won’t purchase the property the owner keeps the deposit. The price paid for the home is established at the start of the contract, with any repairs prior to purchase becoming the renter’s obligation.
There are many risks with this type of contract. The owner may fail to make mortgage payments and lose the property, leaving the renter out of luck. Second mortgages can cause issues too, and if the renter misses the rent by even one day they could lose their deposit. The lease purchase agreement should be placed on title in the Land Registry Office to afford the tenant some legal protection against the landlord. If the market turns downward the renter may be faced with the undesirable options of purchasing a property above market prices or losing the deposit. Scam artists occasionally prey upon unsuspecting renters, and anything too good to be true usually is.
You should have a look at this instead: affordable home ownership program
In reading this it should be clear that the expertise of a Realtor and a lawyer are needed before any contracts are entered into. A Realtor will ensure that you are getting a property of fair value, and will guide you every step of the way including bringing in other experts such as home inspectors. A great Realtor will suggest the best terms for your contract and get you expert legal representation. A lawyer specializing in real estate is your best choice, and will work hard to protect your best interests just as I would. There are times in life where you really do need professional help and ‘renting to own’ is one of them. Don’t hesitate to call or email me, I’d be glad to help you.