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One path to home ownership that many potential buyers choose is the rent-to-own (or lease-purchase) contract. This is attractive to people who want to start building equity, but cannot qualify for a mortgage. They hope to raise their credit scores during the term of the lease and qualify to buy the property before the expiration of the option. Not all lease-purchase contracts are the same, so it is crucial to know what you are getting into before you commit.
As you consider all the costs associated with getting into your own home, compare the costs of renting with and without the option to buy. Also get a moving company quote. If you rent a location that is not available for purchase in order to save cash for a down payment, there will be an additional move when you are able to buy. Rent-to-own contracts offer different benefits to sellers and buyers. Some contracts give unfair advantage to one party. It is preferable to balance the interests of both.
The purchase price is specified in the contract, as well as a time limit. The buyer/renter pays an up-front option fee which is one to five percent of the price, and a monthly rent premium, above the regular rent. This premium is credited toward the purchase. Some contracts allow a buyer who is unable to exercise the option to sell it to another party before the expiration of the option period. Be sure to negotiate contract terms you can meet to finance the purchase by the end of the lease period, to avoid forfeiting your option fee and rent premiums.
