‘What is Rent to own?’ is a question in the minds of people who are finding it extremely difficult to save for the minimum down payment for a home of their own.  The rising cost of living and the rental rates have forced people to explore ‘what is ‘Rent to own’ scheme. They are common in parts of Australia, New Zealand. The answer to the question ‘what is ‘Rent to own’ is that this is an option that is also called the Lease Option that enables you to invest in a property while renting it. These schemes however work only if the market is steady or the prices are going up, according to an Ireland developer who has experience in this business.  Builders in Ireland plan to sell more houses using the ‘Rent to own’ scheme.

How does the ‘Rent to own’ scheme work?

The ‘Rent to own’ schemes works like hire purchase schemes that allow the tenant to rent the house and buy it eventually.  This scheme gives the tenant to buy the house in which he already lives on an agreed date, which is usually between six months to three years.  The mutually agreed buying price is mentioned in the agreement.  The tenant can cancel the buying option anytime.  The rent in ‘Rent to own’ may be slightly higher than the normal rental rates because of the addition of the purchasing option value.  The deposit paid is knocked off from the purchase price of the house.  The developer benefits by getting a good potential buyer who will take good care of the house.

‘Rent to own’ schemes in New Zealand

The Consumer Commission urges people who are planning to buy a house through a ‘Rent to own’ contract to get the protection of the new law on Credit Contracts and Consumer Finance.  The CCCF Act provides protection to the home buyers the minimum standards for the terms of the contract and all the information on consumer credit contracts.  The information includes details such as the total interest payable, the legal and other charges of the contract.  The Act gives the consumer the right to cancel the contract within a short time enabling them to repay the outstanding dues at any time. The Act also allows the Commission enforcement powers for non-compliance with sizable fines and penalties. Simply put, the ‘Rent to own’ scheme allows the person to rent a property that he would like to buy.  This allows him to rent it till such time he has enough funds or can get a mortgage to buy the house at the agreed upon price.   

Characteristics of ‘Rent to own’ schemes

1. The purchaser and creditor sign an agreement mentioning all the details of the transaction
2. The purchaser starts living in the property taking possession after paying the deposit.
3. The title to the property remains with the creditor till the purchaser completes all payments.
4. The purchaser should make payments regularly to the creditor as agreed upon and part of the payment towards rent and the other part to be deducted from the purchase price.
5. A penalty interest is applicable when the purchaser does not complete the payments.
6. If the agreement is cancelled the creditor keeps all the money paid.

The person interested should make proper enquiries on ‘what is Rent to own’ or take professional advice before getting into transactions.