RENT TO OWN – WHAT IS IT ?
Sometimes, those who may have trouble qualifying for a mortgage may enter into this type of arrangement with a potential Seller. In a rent to own, the Seller is essentially financing the buyer / tenant’s purchase of the property until you can qualify for the same and buy it.
Often this involves an “option to purchase” under which the buyer is not a buyer in a true sense but only a tenant with an option to buy which he or she may exercise at a future date depending on the contract. This typically involves a deposit to be paid along with a higher than normal rent payment which is structured for a certain time until the option can be exercised. Further, some agreements may be set up so that a portion of the rent payment goes towards the down payment.
It is important to have this agreement structured properly so all parties are aware of their rights and obligations. A buyer has to understand the legal difference between being a tenant and not yet a buyer and the risks he or she faces in relation to both the deposit and the down payment. There are plenty.
It is also important to ensure that a mortgage lender will recognize the “down” payment given to the owner / seller to truly be a “down”. If the bank does not, it may mean that the option to purchase cannot be exercised – thereby leading to a scenario the potential buyer may risk losing their deposit / down payment.
It is important to consult a lawyer to discuss this further
This article is for information purposes only and does not constitute legal advice and does not create any solicitor-client relationship. Please contact your legal representative and accountant.