Rent To Own Homes

Rent to own homes provide buyers (tenants) and sellers (landlords) additional options during questionable times...The term "rent to own" is not always clear what it means, and that's partially because renting to own and the similar plan lease/option can work numerous ways. However, in a typical scenario, tenants can rent for a set period, such as a year, then when that time is up, they have the option to purchase the home. A portion of the rent is often credited to the sales price, used as a down payment, or closing costs.
 
Most commonly, the buyer wants to enter into a lease purchase agreement because the buyer is unable to obtain financing for some period of time or saving up for a down payment. However, there are risks that make rent to buy more complicated and expensive than straight renting. Among them: the tenant's rent payment will likely be higher than market rent as part of that will be going toward the eventual down payment on the property.  

Lease Purchase Agreement

A lease purchase agreement is an agreement in which the buyer and seller enter into both a lease agreement and a purchase contract at the same time. The buyer will lease the property, for example, for one year, and at the end of the one-year period the buyer is obligated to purchase the property by closing escrow. Buyer (tenant) runs the risk of  obligating themselves in purchasing a home that may not be at current market price.
 
A lease purchase agreement provides the seller (landlord) the most security outside of an out-right sale, as it contractually guarantees the eventual purchase of the property by the buyer (tenant). However, both parties should be cautious if the agreement can not be fulfilled if buyer can not obtain financing to buy the property. 
 
If the buyer (tenant) ultimately decides NOT to buy the house, he or she faces the potential consequences of a broken contract in addition to losing the deposit and rent premiums. The seller, then, also faces legal expenses in pursuing the broken contract.
 

Lease Option Agreement

A lease option agreement differs from a lease purchase agreement. In a lease option agreement, the buyer and seller enter into a lease agreement containing a clause that gives the buyer (tenant) the right, but not the obligation, to purchase the property under specified conditions. The purchase contract is then drawn up when buyer is eligible to obtain a loan and purchase the property at current market price.
 

Landlord and Tenant Act

The Landlord/Tenant Act still applies during the lease period of a lease/purchase agreement. The Residential Landlord and Tenant Act was enacted to govern the rental of dwelling units and the rights and obligations of landlord and tenant: Arizona Tenant's Rights and Responsibilities Handbook
 

Better options VS. Rent to Own Homes

Very rarely does it make sense to rent to own. It's a complex process, and most people don't understand what they're getting themselves into. Instead continue with a straight rental agreement and don't rent-to-own. Put the difference in an interest bearing account and build up your credit. If you're a low-income buyer you may be eligible for a USDA loan (100% financing) or as a first time home buyer, you only need 3.5 percent as a down payment.
 
The Arizona Housing Finance Authority (AzHFA), acting on behalf of the Arizona Department of Housing, announced the launch of the new Home Plus program. The AzHFA Home Plus Mortgage Loan Origination Program provides a 30-­year fixed-­rate mortgage with a down payment assistance (DPA) grant to qualifying homebuyers purchasing a primary residence, which they intend to occupy, throughout most of Arizona.
 

Related Resources

New Down Payment Grant for Renters Looking to Purchase

Itching to move from their rental into a place of their own? Then the new “Home Plus” Mortgage Loan which features a non-repayable down payment assistance grant may help you get the home they’re looking for.

USDA Loans Guidlines

These loans are geared towards home buyers who want to buy in a rural area. You have the ability to finance closing costs into the loan and the underwriting guidelines are relaxed with lower credit ratings. The USDA loan program is not limited to first time home buyers. The loans were set up to assist eligible homebuyers regardless of whether they have previously or currently own a home. However, the property needs to qualify and the homebuyer meets strict income requirements.