Lease to own is an arrangement that an individual enters with the owner that gives the tenant an opportunity to own the property over a period of time. This gives the legal right of the tenant to buy the property at a later stage. The owner can at any point deny this option to the tenant. That is why it is entered in the contract. The tenant is liable to buy the property and in case the tenant does not buy the property at the end of the term, then he stands to loose the lease amount he has paid to the owner. The price of the property is determined by both the parties and the time of repayment also is defined in the document. In most of the cases, a portion of the rent goes towards the down payment of the house. Suppose the tenant wants to buy the property then he needs to pay the amount minus the down payment.
A lease to own agreement is comparatively costlier when compared to other forms of rental agreements. The user needs to pay an option fee which is called the rent premium. This rent premium amount is not returned to the tenant once the buyer does not exercise the option. The user is at loss when he does not buy the house within the stipulated period. The premium amount is lost and the house also is no more theirs. They have to vacate the place and look out for a new accommodation. This option is preferred by first time buyers as they do not have sufficient savings for the down payment. Though government grant is available for a first time buyer, they have to make arrangement for the deposit amount the banks ask for which is higher than the grant amount. Hence, they cannot opt for a mortgage loan. They are only left with one option that is lease to buy. Likewise people with poor credit ratings also feel that rent to buy is the best option, since there is no credit check and no unnecessary tampering of the buyer’s credit records. This can help them build their credits over a period of time and also make them proud owners of the property.
Once the lease to buy agreement is drafted both the parties cannot go back on the terms. They have to abide by the contract and live up to it. In case the tenant is not able to organize money for the balance payment, then he stands to leave behind all the money he has invested in the project. His down payment, the monthly rentals that went towards the payment of the house will all be taken away by the owner as per the contract. So, only if a buyer is sure of securing funds for the house, should he indulge in such practise. Sense of confidence that he can complete their payment before the duration alone will not help them complete the lease to own
deal, they should identify sources from where the money will come and then take the final step of signing the document.