In a rent-to-own arrangement, the tenant and the owner sign an option to purchase agreement. Under the agreement, the tenant gets the right to purchase the house three years down the line at an agreed price. The fee is 2.5 percent of the overall purchase price.
Under the rent-to-own concept, the tenant remits rent every month plus a separate amount towards the property’s down payment. In normal situations, the whole amount paid totals up to close to five percent of the total purchase price by the time the contract ends. Most tenants hope that by the end of the contract, their credit score will have significantly improved. The improved credit scores allow them to qualify for an insured mortgage. Property owners prefer this option, because most tenants that are under the rent-to-own concept take better care of the property.
The agreement can either be on a weekly or monthly payment schedule. Payment of the agreed amounts automatically renews the lease. Although not obligated, the tenant may choose to continue remitting agreed interval payments on the property for a specified period, at which point they would legally own the property outright. This type of agreement is favorable to aspiring homeowners that have poor credit scores.