A rent to own contract is often established between a property owner and a renter who plans to buy the property within a specific period of time. In most cases, the renter will pay the owner a deposit which will be used towards a down payment when it is time to purchase the home. In addition to the deposit, the owner will collect rent every month, a part of which will go towards the purchase of the home. Set up a rent to own contract that will protect the interests of both the property owner and the renter who plans to eventually buy the property.
How to Set up a Rent to Own Contract:
Establish who owns and who rents. The contract must identify who owns the property and who the property is being rented to. •Include the address of the home. You can also list any other information that identifies the home, such as the lot number or deed number.
Specify the date that the renter will move into the property. Include the date, month and year.
Specify the date that ownership will transfer to the renter. Most rent to own contracts are at least 3 years long.
•Give the renter enough time to build equity in the house and repair any credit problems that may currently prevent him or her from getting a mortgage. Borrowers can usually clear up bankruptcies or other credit problems in about 3 years.
Determine the amount of the deposit the renter will pay the owner. This money is used towards the down payment. The deposit is usually at least 1 percent of the purchase price.
Specify the purchase price of the house. Both parties need to agree on the purchase price.
List the amount of rent to be paid. The contract should state how much rent will be paid each month, and on what day that rent is due.
•Include language that addresses late fees or actions that will be taken if rent is not paid.
•Indicate how much of the monthly rent, if any, will be contributed towards a down payment. This amount will be added to the deposit when the renter is ready to buy.
Establish who will maintain the property. In most cases, the renter is responsible for maintaining the house, since the renter is living in it and planning to buy it.
What happens if tenant decides to move and does not want to purchase the property:
Worse case scenario, IF RENTER (TENANT) DOES NOT EXERCISE THE TERMS OF THE CONTRACT, which means BUY THE HOME in the contract time limit, THE OPTION FEE (which is not a security deposit that you can get back, but a FEE towards the purchase of a property, which could be 1% of the purchase price of the property) WILL BE FORFEITED TO THE SELLER as compensation for holding the sale of the property for the tenant.
•If a renter does back out at the end of the agreement, the seller still has the option fee and rent premiums as income. However, the seller is back to square one, which may be difficult for some homeowners who just want to be free of their old house.
Because of the many concerns on each side of the rent-to-own transaction, both buyer and seller should obtain the assistance of a real estate attorney (two different attorneys) so that each party is fully aware of its rights and responsibilities