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Rent to Own Contract:

Legally Binding

A rent to own contract has six major items:

1. Purchase price - determined by the market, but is negotiable.
2. Monthly rental payments - subject to market conditions, but are also negotiable.
3. Option period - the amount of time the buyer has to exercise the rent to own option. typically in years.
4. Rent premium - the monthly amount that is above and beyond the normal monthly payment and is credited to the purchase price.
5. Option fee - the set amount the tenant pays the seller, typically 1-5%.
6. Rent credit - this is amount is the same as the rent premium and is credited to the purchase price of the home.

A rent to own example:

Assume a landlord has a house worth $100,000. Assume market conditions in this city puts monthly rent at $500/month. A person who wants to rent to own this home might pay $700/month and receive $200 per month in rent credit. The option fee in this example is $2,500.  Over a 3 year rental period, the tenant would have earned $7,200 in rent credits. Combine the rent credits and the $2,500 option fee and the total accumulated amount earned by the tenant is $9,700.  Therefore, at the end of the option period, the renter would have a balance of $90,300 instead of $100,000.

Benefits of rent to own:

The monetary advantages of rent to own contracts are quite substantial for buyers who don't have a high enough credit score to purchase the home and/or have enough money saved for a down payment.