Tenant Checklist for Rent to Own
If you wish to lease to own property, it is important to follow a detailed process. This type of renting is very risky; your diligence to renting to own should be the same as it would if you were purchasing a new home. Below we’ve provided a three-step tenant checklist to help you satisfy your requirements:
1. Perform Careful Research
Find a real estate agent. The seller will pay the fees for hiring a real estate broker or agent, so you have an advantage here. Optimally, you should try to find someone who is familiar with the area and has years of real estate experience.
Weigh the alternatives. Compare the pros and cons of different homes with your agent to make sure you select the best deal for your money.
Get an appraisal. To make sure you aren’t being charged an unfair price, have an expert estimate the home’s value.
Get a home inspection. This must be done before you move in, or else you may have to pay for damages/repairs that you find. Consider getting several inspections, such as for pest, water, radon and carbon monoxide inspections.
Acquire the title report and seller’s credit report. This way, you can see how long the seller has owned the property and if there have been any major problems with it in the past. You can also request their credit report to determine if this person is a reliable seller.
2. Make the Deal
Complete application for rent to own. One property may have several interested applicants; you must be accepted before you can rent to own.
Have seller provide proof of current mortgage. You can do this by requesting to see the seller’s recent payment history on their mortgage account statement. It is important to look for a timely payment pattern. If you discover the property is about to enter foreclosure, do not sign the deal. Sellers trying to rent to own their pre-foreclosure properties is actually a common rent to own scam.
Agree on selling price and terms of agreement. The selling price should always be a rough estimate of the future market value of the home when the lease expires. This value should be appraised before you begin to make the deal. While you can decide on the purchase price before your lease, you can also decide on the purchase price at the time of purchase.
Receive lease to own contract. After the agreement is signed and recorded, both the buyer and seller become legally binded to it. You should always have a full understanding of the contract. To learn more about the terms of the agreement, be sure to check out 6 Key Rent to Own Contract FAQs.
Pay option fee, first month’s rent, and renter’s insurance. Most sellers require tenants to pay the option fee and first month’s rent either during the signing or shortly thereafter. Renter’s insurance is optional, but ensures coverages for certain damages to the tenant’s personal property.
3. Rent the Home
Require monthly rent payment receipts. This could be as simple as keeping copies of your monthly rent checks. For legal reasons, you should always know exactly how many payments you’ve made and aware of the status of your term.
Require that rent credit remain in escrow. This is usually something tenants need to negotiate with sellers. An escrow is a secure way to ensure that nobody can access your rent credit until your term expires or the contract becomes void.
Maintain in good standing with the seller. Renters can do this by following up with the seller every 3 months or less, to discuss rent credit and provide updates.
Treat the home well and make necessary repairs. This one is pretty self-explanatory. To prevent conflict with the seller, make sure you are keeping the house up to standards and repairing property if it is damaged.
Obtain mortgage financing and close the deal. Assuming everything goes to plan, the renter should be able to obtain financing from a mortgage lender to purchase the house. After financing is acquired, the seller will provide closing documents to transfer the title to the buyer.