Rent-To-Own: How Does It Really Work?

Before today, I've always wondered about the rent-to-own (also lease-to-own and lease-purchase) scheme and what it really meant.  In most cases I've seen, it's just a very clever wordplay on buying the property, making the buyer think he's paying rent when in truth he's already paying for the monthly amortizations.  Or maybe, I really just didn't know any better.  Well, I can't stay ignorant about this any longer, so I took to reading up on it.  I found a great resource from The Mortgage Professor on what the buyer and seller need to know to make the transaction beneficial to both.

In essence, the lessor and the lessee agrees on a price and a period of time that the lessee may purchase the property.  The lessee then pays 1-5% of the agreed-upon price to the lessor, which will serve as the option money, and is credited to the purchase price should the lessee be able to complete the purchase within the agreed period of time.  The lessee pays rent plus a rent premium (that is also credited to the purchase price) every month.  At the end of the purchase period agreed upon, if the lessee is unable to complete the transaction, the option money plus the rent premiums are forfeited in favor of the lessor.

Make sure to read the full article on the rent-to-own scheme to get a better idea if this is something you'd consider down the road.  If you've always wanted to have your own home but can't afford an outright purchase yet, this may not be such a bad idea after all.

Jon