What Is Rent to Own?

Home For Rent Sign

Also known as a "Lease-Option" or "Lease-Purchase", a Rent-to-Own transaction gives the tenant-buyer occupancy of a property with the 'option' to purchase the property by the end of the contract period. Essentially it is a pathway to full ownership with an extended timeframe. That way you, as the buyer, have time to save a full down payment, clear up any credit issues, and to line up financing.  It is sort of like a bridge between renting and homeownership.

In a rent-to-own purchase there are two stages and two agreements.  You have a rental / lease period followed by the purchase period.  The process is governed by a standard lease agreement coupled with a separate "Option to Buy" agreement.  Typically, the buyer will put down a non-refundable option deposit to secure your place as the future owner of the home.  This is separate from a security deposit for a rental, which is returned at move-out.  Then you’ll make monthly payments on the lease agreement.  The option agreement gives you the legal right to buy the property at a future date.  Once you are ready to complete the purchase, you will "exercise the option" with the standard purchase process that results in full ownership by you.

A Lease-Purchase deal simplifies the closing process because there are no banks to require an appraisal or slow down closing.  This process can work well for home buyers moving into the area that have an unsold house on the market elsewhere.  A non-contingent purchase!  Perhaps you have recovered from a bankruptcy or foreclosure a few years back. You could buy now while the waiting period expires.

So if you expect to be able to buy the property in the future, but cannot swing it at this very moment, then a lease-purchase may be right for you!