Financials
In a rent-to-own agreement, you (as the buyer) pay the seller a one-time, usually nonrefundable, upfront fee called the option fee, option money or option consideration. This fee is what gives you the option to buy the house by some date in the future. The option fee is often negotiable, as there’s no standard rate. Still, the fee typically ranges between 1% and 5% of the purchase price. In some contracts all or some of the option money can be applied to the eventual purchase price at closing.
Prepare for Your Future
You’ll pay rent throughout the lease term. The question is whether a portion of each payment is applied to the eventual purchase price. As an example, if you pay $1,200 in rent each month for three years, and 25% of that is credited toward the purchase, you’ll earn a $10,800 rent credit ($1,200 x 0.25 = $300; $300 x 36 months = $10,800). Typically, the rent is slightly higher than the going rate for the area to make up for the rent credit you receive. But be sure you know what you're getting for paying that premium.
A rent-to-own agreement can be an excellent option if you’re an aspiring homeowner but aren’t quite ready, financially speaking. These agreements give you the chance to get your finances in order, improve your credit score and save money for a down payment while “locking in” the house you’d like to own. If the option money and/or a percentage of the rent goes toward the purchase price – which they often do – you also get to build some equity.
Lease-Option Examples
LTH Rentals' Own Personal Experiences
