5 Rent to Own Agreement Questions

January 10, 2017 by Natalie Calvo |

Drop the pen. Do not sign off on a rent to own contract before asking the seller these 5 rent to own agreement questions.

You understand rent to own, you found the perfect house and the owner wants to give you the lease option. You’re ready to move forward with the deal, but, wait. Have you asked the seller these questions? Make sure to ask these 5 Rent to Own Agreement Questions. You’ll probably still start working toward your dream home, but you will feel a lot safer about it.

1. Who covers what fees? (insurance, taxes, repairs)

Technically speaking, in a rent to own scenario, you act as the owner of the home. While you don’t have the deed in hand, you still have to make and pay for repairs to the property. However, the situation isn’t entirely black and white. The owner might still pay for insurance and taxes on the home. It’s important to have these details in the contract before you enter rent to own agreement.

2. Can I assign my option rights to someone else?

Assigning option rights means at a later date you can assign the option to someone else and charge them for the down payment that you paid. Option fees that are assignable, sellable or transferable work that way.

So, if for some reason you decide you don’t want to purchase the home, at any point throughout the lease, and you want to move somewhere else, you don’t lose your money. You can sell your position in the contract to someone else and recover all of the money you spent. That person would pay you for your spot and continue to make payments to the owner. At the end of the contract, that person has the option to buy the home. If you choose to do this, you would no longer have the first option to buy the home at the end of the contract. If this sounds like a possibility to you, ask your lawyer to include something about it in the contract. If you have other questions about your contract, check out these rent to own contract faqs

3. Does the entire premium price go toward my future down payment?

Make sure that the seller isn’t overcharging you. Your full payment equals the fair market value rent plus the premium that gets put into escrow. If you’re paying more, call the owner out on it before buying the property and find out why you’re being overcharged.

For example: The fair market rent is equal to $600. $50 of what you pay each month is being put into escrow. You should be paying the seller $650 per month.

4. Are there any liens or claims against the home? Is the home collateral for anything?

Basically, do your due diligence to make sure the seller hasn’t passed any debt onto the house that would be passed on to you if you choose to buy. Ask the seller, but take what he or she says with a grain of salt. Visit a public records office to look up the history of the financial records for the home and to perform an unofficial background check on the seller.

A lien can be placed on the owner’s home if he or she writes a bad check or doesn’t pay a contractor or employee. The amount the owner owes is passed on to the house until the owner pays off the debt. While the owner SHOULD pay it off when he or she sells you the home, you want to make sure to have it in your contract. It’s a possibility that the owner doesn’t even know about the lien on his or her home. For that reason, make sure to go the extra mile beyond what the seller says to research this question.

Did the owner put the house up for collateral to buy another property or to secure financing for something else? Include something about it in the contract. Be wary that the owner could foreclose on the home if, for some reason, he or she doesn’t make the payments on the collateral financing. Also, make sure that if you buy the home, the home is no longer collateral for that financing. Ask your lawyer to include something about the collateral in the contract. You don’t want to risk losing the home once you’ve bought it because of the previous owner’s debt.

For other potential hazards to look out to, check out 5 ways to spot a rent to own scam.

5. While you’re at the public records office, find out if the owner has a mortgage on the home.

Finding out about the owner’s mortgage payments will help keep you secure. Be sure you will be able to live in the home for at least the time specified in your lease. The owner may not be able to pay off the mortgage every month and could foreclose on the home if the mortgage payment is higher than your rental payment.

While this would be a scenario where you would probably get excess payment back, you wouldn’t be able to purchase the home, and you wouldn’t be able to live there for as long as you expected. It won’t directly hurt you, but it will be difficult for you to move again and look for a new place to live. Especially if you’re looking for another rent to own property, which are more rare. Moving costs are also expensive, and you may have to take time off from work. If the reason you are renting to own is to improve your credit, the owner foreclosing could have unintended repercussions for you.

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