How rent-to-own homes work

What happens if you want to own a house instead of renting but do not have enough money saved for a down payment or your credit is not good enough?  For many, the rent-to-own home may be the best option.

The process works similarly to a car lease: You have to pay a certain amount each month to live in the house and at the end of a set period, generally within three years; you have the option to buy the house. A portion of the monthly rent you pay goes toward as your down payment to eventually purchase the home.

Before entering into an agreement, both sellers and buyers need to agree on the sale price and monthly rent. Both amounts are subject to negotiation, just as a regular sale would be. Once they sign an agreement, the sale price of the house is locked in until the end of the term. Even if other housing prices rise or fall in the same area during the time period, the original agreed-upon price is final.

Renters need to choose which savings credit options they want.   The savings credit is a set amount that the renter pays the seller. If, at the end of the term, the renter buys the home, the credit becomes part of the down payment. If the renter doesn’t buy the home, the credit becomes income for the seller. Typically, rent premiums are an amount slightly above the normal rent, with a portion of that money going toward a down payment.

Here is an example:

Current Market Value	290000
Annual growth rate	5%
Home price in first year	304500
Home price in second year	319725
Home price in third year	335711
	3%	5%
Deposit (3% -5% for the current price)	8700	14500
	"No" Savings program	"Gold" Savings (10% credit)	"Platinum" Savings (20% credit)
Monthly payment	1550	1650	1750
Monthly savings credit earned	0	165	350
Actual rent paid	1550	1485	1400
Savings credit earned in first  year	0	1980	4200
Savings Credit earned in 2 years	0	3960	8400
Savings Credit earned in 3 years	0	5940	12600