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Rent to Own Contract Questions

Rent-to-own is a real estate purchase option in which the buyer is allowed to purchase a property without initially getting a title to it. Usually, a buyer strikes a deal with the seller regarding the future price of a particular property. The buyer then rents the property and pays the seller a higher rent than what the market demands. A portion of this rent goes into a down payment on the house, which the buyer can buy at a later date.

Listed below are a few questions on rent-to-own agreement related issues.

Can you please differentiate between the terms “rent-to-own” and “land contract”?

In a rent-to-own scenario, you have a regular lease but pay an additional amount every month that goes towards your property’s down payment. Usually a lease of this kind stretches for a year or two and upon completion of the period, you have the option of buying the property at a price that has been agreed upon at the time of signing the lease.

In the case of a land contract, you buy the entire property up front. The seller helps you finance the purchase and you get an opportunity to use the property. However, the title remains in the seller’s name until you have completed all your payments. Once the payments are made, you get the title.

In a condo HOA, can a tenant with a rent-to-own agreement represent the landlord?

This is usually not possible. Since you only have a rent-to-own agreement and do not own the condo, the HOA can decide to not work with you. Legally, only the person whose name appears on the property deed or is otherwise called the “owner” can deal with property issues.

I have a rent-to-own agreement on a property. Can I sell the home to pay off what I owe the original owner or can I give the property to someone else based on a rent-to-own agreement?

Usually as a rent-to-own occupant, you would not possess ownership rights to sell the property. However, depending on what your written contract says, you may be able to rent the property out to someone else or give your rent-to-own agreement to another person.

My tenant has a rent-to-own contract. As a landlord, do I still own the property until all the payments are made? Also, do I have the right to evict the tenant if he doesn’t pay the rent on time?

The lease that you have signed with your tenant should determine who owns the property and the security interests therein. Your lease should say you have the right to speed up the loan in case of default and take back possession of the property if the accelerated sum is not paid by a certain date.

Is a rent-to-own agreement a smart way to buy a home if you have bad credit?

Instead of entering into a rent-to-own agreement, there are two other options you can explore. One is you could rent a house, with an option to buy it later within a stipulated amount of time, and pay the market rent on the house. If you decide not to buy it then you would not have lost money that would have gone into the down payment for the property. Alternatively, you could buy a house straight away with the help of a seller who can provide owner financing secured by the property so that, in the event that you default, he/she could take back the property. As long as you make the payments, the property would still be yours.

Rent-to-own agreements have its advantages and disadvantages. However, as a property owner renting to a prospective buyer or as a buyer keen on acquiring property through this method, you should be aware of how the agreement works.
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