Buying a home is one of the biggest milestones in a person’s life as it is a huge investment and quite likely to be the center-point of all future memories. One may believe that it is impossible to purchase a house without having a hefty sum set aside for the down payment and a good credit score to be eligible for a home loan. However, there’s an alternative, which is called a rent-to-own agreement.

Things to know about rent-to-own homes

What is a rent-to-own agreement?

Rent-to-own agreement enables one to rent a home for a certain period of time, with the clause that they can buy the same property before the lease expires. This agreement gives renters the advantage of living in the house before making a huge commitment. The arrangement has numerous benefits, such as the renter would know if there’s leakage, can inspect the entire house for cracks, pests, or other risks, and will know if the house is big enough to accommodate their family and their belongings. The rent-to-own agreement also allows individuals with bad credit to improve their credit score and/or savings while renting the property.

How is rent-to-own agreement different from a normal agreement?

If you have opted for a rent-to-own home, the rent tends to be higher than the current market value. Should one decide to buy the property, the extra rent becomes a part of the down payment for the house. At the end of the lease, the amount is calculated and deducted from the lump sum required to pay for the deposit. Additionally, one may or may not have to pay an option fee of approximately 2-7% of the home value to hold onto the buying option of the house. If the house is not bought by the renter, they lose out on the excess lease payments. That said, it is ideal to opt for rent-to-own homes for people with bad credit scores.

Are there varied types of rent-to-own contracts?

The two major types of contracts include lease-option and lease purchase.

Lease option agreement

The agreement includes a negotiable one-time lump sum option fee to hold the property, which can typically come to 2-7% of the market value of the house. The excess rent paid towards the end of the lease goes toward your down payment. Given that the rent credit and option fee are paid, the total price of the property is calculated according to prevailing market rates and sold. One may even come to a prior agreement about the purchase price set by the owner for rent-to-own homes.

Lease-purchase agreement

This works exactly like a lease-option agreement, with the extra rent working as credit for the house’s payment. However, with a lease-purchase agreement, the renter has an obligation to purchase the house at the end of the lease. The purchase price is agreed upon when the renter and the homeowner sign the rent-to-own lease. The renter can specify the date for an appraisal and agree on a price before signing the lease. The benefit of lease-purchase agreement is that it gives the buyer some time to apply for an appropriate loan amount. However, if the renter doesn’t manage to get a loan or funding for the house, they will lose out on the rent credit and the homeowner may also sue them for breach of contract.

Is there a rent-to-own trailer option?

Yes, there is a legal option to rent-to-own trailers. This agreement can include different types of trailers such as dump, tilt, gooseneck, cargo, or car hauler. These can be leased in exchange for monthly payments, including the rental fees and the rent credit that goes towards the base price of the trailer. The contract of trailer rent could vary between 24, 36, 48, or 60 months.

Is renting a trailer the same as financing one?

Renting a trailer to be able to own it is an alternate option to traditional financing. The conventional way of owning a trailer will include the buyer paying a heavy deposit and taking a loan to pay off the rest of the dues via vehicle loan. In the case of the trailer’s rent-to-own option, if the renter defaults on their monthly payments, a statement will be filed on the renter’s credit history, which will impact the renter’s credit score directly. However, one benefit of a trailer rent-to-own option is that it enables the renter to return the trailer before the lease ends and without incurring any penalty if all payments are made.

If you’re looking at rent-to-own properties or rent-to-own trailers, there are third-party agencies that offer rent-to-own services. These services are usually opted for by people who don’t have a great credit score and may need help in financing their house or vehicle. Regardless of the agency you choose, be sure to read the contract and terms of agreement carefully. This will avoid the potential risk of penalties, bad credit scores, and breach of contract.