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Rent with Option to Buy

A Rent with Option to Buy may sound like a good deal, but is it?

It works for some people, but does it work for you?

How does it work?

Rent with option to buy is a contract between you and the seller to rent now and buy the house at a future closing date. This can be anywhere from one to three years after the contract is signed. Each month a portion of the rent payment is set aside in an escrowed account. When you are ready to purchase this money is used to initiate the contract. 

What are the advantages of a rent with option to buy?

  • You can defer making a decision for a set period of time (rent to own options can vary in time from 6 months to a year or even longer).
  • You can live in the property before you purchase and determine if it and the neighborhood are right for you.
  • You can save up money or improve your credit while living in your new soon-to-be home.
  • At the end of the year your earnest money deposit is already in place.
  • Depending on the agreement, you can walk away if you find something seriously wrong with the house. Although you will lose the option fee and all your rent credit money, that amount will be much less than if you had bought the house outright and tried to leave it later.

  What are the disadvantages of a rent with option to buy?

  • When you write up a lease for a rent to own the purchase amount is stipulated and you have no way of knowing what the property is going to be worth at the end of the year.  (There are ways around this, you can stipulate that the property amount is at "market value" and based on the appraised value of the property at the time of purchase. The problem is getting the seller to agree to this.).
  • You still have to pay the upfront option fee. It's usually a percentage of the agreed-upon selling price of the home and is often thousands of dollars. Although this money will go to the down payment should you decide to buy the house, it can still be difficult to accumulate that much money before renting.
  • If you are just one day late on a month's rent payment, most agreements void the rent credit for that month. Think about the previous example, where the one-year renter received a $200 rent credit each month. If the buyer paid the rent late just three times each year, at the end of the lease period, the buyer would have $1,800 less for the down payment. The buyer in the rent-to-own agreement must pay on time, every time.
  • If the seller fails to pay the original mortgage on the house, it may be foreclosed and you may be forced to move.
  • All those repairs that used to be somebody else's problem in a rented apartment often become the responsibility of the new buyer, even during the rental period. Whether it means climbing on a ladder to unclog the gutters or having to pay for a new washing machine when the original washer breaks, the renter has to take care of it.
  • If you decide not to purchase you can just about guarantee that the seller will ask you to leave; extensions are extremely rare in rent to own transactions.

For more information please feel free to contact me. 

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Margeau Gilbert
Exit Right Realty
8730-16 Cherry Lane
Laurel, MD 20707
Direct: 240-462-1955
Office: 301-362-4500

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Margeau Gilbert | 240-462-1955 | Contact Me
Exit Right Realty - 8730-16 Cherry Lane - Laurel, MD 20707
Office: 301-362-4500
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