Saving up money to make a significant down payment on a Delaware home might prove to be a challenge. Such difficulties may lead you to consider the use of a rent-to-own agreement, which can let you rent a home for a period until you finally buy it. However, you might feel uncomfortable about signing an obligation to purchase the residence.
Rent-to-own contracts can vary in their provisions. You should take careful note of whether or not the agreement actually requires you to go through with buying the property.
Option versus a purchase requirement
A rent-to-own agreement usually comes in two types. One contains a lease option, which grants you the right to buy the house at some point during your lease of the home or at the end of the agreement. This is basically a right of first refusal, permitting you to walk away from the deal if you choose.
By contrast, some rent-to-own contracts contain a lease purchase requirement. This provision would obligate you to go ahead with the home purchase at the expiration of the rental period.
Check upfront fees
A key indicator that your contract has a lease purchase requirement is the size of the upfront premium payment you must provide. A seller will likely want you to pay a sizable fee, perhaps as high as 20% of the total purchase amount, to prove that you are serious about acquiring the property.
With a lease option, the fee is usually much lower. The typical range you can expect to pay is 2.5% to 7% of the home purchase price.
If you have doubts about buying a rental home, be cautious when reviewing the terms of a contract as you negotiate it with a seller. In the event you miss a rental payment, the seller may be able to void the agreement and require you to move out. Still, if your finances are in good shape, you might find a lease purchase requirement acceptable.