Renting to own uses specific language that is specifically unique towards real estate buyers and sellers. Become familiar with the terms that may arise in a conversation or even ultimately end up in your contract, so that you’ll definitely be ahead of the game. These are the key terms you will most likely encounter in a renting to own situation: option fee, purchase price, option period, and option credit.
Option fee (also known as option of consideration). This optional fee is payed directly to the landlord at the very beginning of the rent-to-own leasing period. This fee will grant you the exclusive right to decide on purchasing the property that you intend to rent out. That right will last strictly through the end of the agreement and will keep the house off the market during that agreed upon period. This fee generally ranges from between 2.5 percent to 7 percent of the home’s purchase price.
It is important to know that the option fee is not a security deposit. If you decide against buying the house, unfortunately you will most likely not get your money back. However, the option fee in its entirety will be applied towards the purchase of the home if you decide to buy.
Purchase price: Purchase price is generally open to negotiation when you are deciding upon the lease, but keep in mind that it is ultimately final once the agreement is signed. The benefit to this is that the market may go up or down during the period of your lease, but the price of the house is now locked in and cannot change!
Option period: This is generally referred to as the length of the rent-to-own leasing period. Generally these leasing periods last from one year to three years and may go as long as five years.
Option credit, also known as rental credit or rent premium. This is the portion of your monthly rent that will fortunately go towards your down payment should you decide to purchase the home. The amount is however not refunded if you decide against buying the house. The general rule is that if your payment is late, none of the monthly payment will go towards purchasing the house. The credit can greatly vary between nominal amounts all the way to almost 50 percent of your monthly rent.