Build Equity

• When you rent or lease a home to own, the rental agreement is structured in a way that allows you to build up some equity value. Typically, a portion of your monthly rent payment is set aside as a down payment for your home or credited to the purchase price. Depending on the terms of your rental agreement, you may be asked to pay an option fee ranging from one to five percent of the home's value. This option fee is also applied to the purchase price of the home or credited as part of your down payment.
  
  

Lower Costs

• During the rental period, you are not responsible for paying the cost of property taxes or insurance for the home. The property owner is also responsible for any maintenance or repair costs for the home prior to the expiration of the lease. The option fee that you pay when you sign the lease is also typically less than you would have to pay for a down payment. The closing costs are also generally lower for a rent-to-own option since there are no Realtor fees. In some cases, the seller may even credit you for a portion or all of the closing costs based on your payment history.
  
  

Greater Flexibility

• Renting-to-own offers greater flexibility for prospective homeowners by giving you the opportunity to test drive the home prior to buying. If you find that the home doesn't fit your expectations or lifestyle, you have the option to let the purchase option expire without further commitment. The terms of the rental agreement are generally up to the seller, meaning they may be more flexible when it comes to credit requirements. If you have poor credit, renting-to-own gives you time to pay down your debts, correct any errors on your credit report and reestablish a solid payment history.
  
  

Considerations

• Study the details of the rental agreement carefully prior to entering into a rent-to-own contract. If you're unclear on any of the wording, ask the seller for clarification prior to signing any paperwork. Pay particular attention to any clauses that allow for nullification of the agreement on the seller's part since this can potentially cause you your security deposit and/or option deposit. For example, your seller may include a clause that voids the agreement if you miss a rent payment. Also consider whether the seller will allow the sale price to be renegotiated in the event the home's value declines during the rental period.