When you enter a rent-to-own or a lease-to-own situation, you’re renting a house with the intention of buying it someday. Other terms are lease-option or lease-purchase. Lease options means you have the option of buying. Lease purchase means you must buy.
Why do people do it?
People usually do this when they aren’t quite ready to buy a home, maybe because their credit score isn’t high enough yet, or maybe they don’t have enough down payment saved up. You can move into a rent-to-own home right away. The agreement you strike with the owner differs with each deal, just as each landlord-tenant lease differs. But here is generally what you need to know: You usually specify how long you’ll rent before you will buy, usually one to three years.
What you need to know
What makes a rent-to-own arrangement different from a regular rental agreement is that you usually must pay option money, which is a one-time fee that buys you the option to buy. Option money is usually between 2.5% and 7% of the home’s purchase price. Sometimes the option money goes toward the price of the home, and sometimes it doesn’t, depending on your lease. Your monthly rent might also be higher, with a certain percentage of rent going toward the price of the home.