If you have had your home listed for sale for some time with no prospective buyer in sight, you may be considering a rent-to-own option. Or, you may be in the market to purchase a new home, but your credit may have taken a hit over the past few years and you may be having difficulty qualifying for a mortgage and a rent-to-own option may be your way to home ownership. Before proceeding with this action, however, it is important for both sellers and potential renter/buyer to know exactly what kind of contract they are entering into to.
In a rent-to-own contract, the prospective buyer puts a percentage down when moving into the home (usually three to 10 percent of the purchase price) and then pays monthly rent to the property owner. A portion of the rent is put towards the eventual purchase price of the home. There is typically a set date where the exchange of ownership of the home will take place, usually within a two to five year period.
There are pros and cons for both the buyer and the seller in rent-to-own contracts. For the property owner, it is a good way to generate income to help pay the mortgage and taxes instead of the house sitting empty waiting for a buyer. For the buyer, part of your rent money is being “invested” instead of just paying it out with no return each month.
The cons, however, are definitely issues of which both sides need to be fully cognizant. Unfortunately, many property owners who offer the rent-to-own option do not disclose to the buyer that they are currently in foreclosure status. If the foreclosure goes through, the buyer will lose all the funds they put down and towards the purchase price. Rent-to-own buyers also do not have the same legal protections that regular tenants have. Should the buyer get behind in rental payments and end up getting evicted, they would lose their down payment and any other fees that went towards the purchase price.
Another consideration for buyers is to clarify in the contract what will happen to the down payment and other funds that were supposed to go towards the purchase price if, after the rent-to-own period has expired, they still do not qualify for a mortgage and are unable to purchase the house. If there is not a contingency in the contract, a buyer would lose those funds.
Whether you are a buyer or seller, if you are considering a rent-to-own purchase, consult with an experienced DuPage County real estate attorney to make sure that you are fully protected in the transaction contract. Call the Law Offices of Salvatore C. Miglore & Associates at 630-933-8400 today for a free consultation.