Rent to own homes involve contracts that work differently than conventional home purchase or rental contracts. Before signing a lease option purchase contract, homebuyers should be well informed on how the contract works. The contract may be a bit tricky and confusing to some. The following information helps to explain the contract so it is easy to understand before signing this agreement.
When entering a rent to own homes agreement, homebuyers may encounter two different kinds of agreements. First, the lease agreement spells out the rental part of the agreement, noting the monthly rental price and other relevant terms. The second part is the option agreement, which deals with the option to purchase the home and relevant terms and information. Understanding and checking both parts of the agreement is essential before signing.
The option agreement is the second part of the rent to own contract. The option agreement lets the renter/homebuyer have the first option to purchase the property. Buyers may purchase the home at any point during the agreement or at the end of the lease period. This means that the seller of the residence is under obligation not to sell the property to anyone else except for the person who entered into the lease option contract. The agreement essentially holds the property until the homebuyer becomes ready to make the final purchase of rent to own homes.
Buyers Have No Obligation to Buy
Rent to own homes offer excellent benefits to homebuyers, since they have no obligation to buy the home. While the seller is obligated to allow them to buy the home before anyone else, buyers do not have to follow through and make the purchase – they can walk away from the home. If buyers have problems getting financing at the end of the lease period or they find they no longer like the home enough to purchase it, they are able to simply walk away, although they will forfeit their rent payments and option fee.
When buyers sign the lease option contract, the option fee must be paid up front. This fee guarantees that the buyer will have the first option to purchase the home. The specific amount of this particular option fee varies from agreement to agreement. It normally falls between two percent and five percent of the purchase price of the property, which will be predetermined at the beginning of the lease. Unfortunately, this option fee is non-refundable if the buyer walks away and refuses to buy the property at the close of the contract period.
At a Glance
- The lease option agreement is the contract between buyer and seller;
- The option agreement deals specifically with the buyer’s option to purchase the home;
- Homebuyers are under no obligation to purchase the home at the close of the contract period;
- Option fees must be paid up front and are non-refundable.