RENT TO OWN

A rent-to-own transaction differs from a traditional lease, in that the lessee can purchase the leased item at any time during the agreement in a traditional lease the lessee has no such right, and from a hire purchase/installment plan, in that the lessee can terminate the agreement by simply returning the property rent to own purchase the buyer has a limited time.

Tenant/buyers who have imperfect credit scores are typically drawn to rent-to-own properties since the lease terms allow them to live in the home while they take the steps necessary to fix their credit and secure a mortgage. Most lease purchase agreements allow them to lock in a market rate when they sign the contract. People with poor credit find the leasing period a crucial opportunity to repair their financial profile to secure a loan. A common complaint tenant/buyers have with rent-to-own agreements, however, stems from their inability to secure a loan in time to purchase the property, whether due to insufficient downpayment or credit, at which point they are left to restructure the agreement or forced to walk away.

BE AWARE 

Because MN rent-to-own real estate contracts are flexible open-source documents, there is room for scammers to take advantage of unprepared tenants. Rent-to-own proponents recommend consulting licensed realtors and/or real estate lawyers for every step throughout your transaction for your safety.

How is the Mn Rent to own structured?

Monthly Payment – How much the tenant will be paying monthly.
Rent Credit – How much of the tenant’s monthly payment will go to the eventual down-payment of the property at the end of the lease. It is strongly suggested that the tenant establish an escrow account to ensure the security of his or her rent credit.
Duration – The timeframe of the Lease-Purchase Agreement. Usually 2–3 years or more.
Property Value – The locked-in sale price of the property. The Tenant-Buyer and Seller usually agree to keep the property value the same despite house market changes.
Terms and Rules – This section talks about other details of the Lease such as property taxes, home repairs, homeowner’s association

Lease to Own

In a standard Lease-Purchase Contract, the two parties agree to a lease period during which rent is paid, and the terms of the sale at the end of the lease period, including sale price. Often, the contract is structured in two parts, one representing the lease term and the other a contract of sale. The lease agreement expounds upon what responsibilities the tenant/buyer and landlord/seller undertake during the course of the lease. This contract will also include the option fee and how much of the monthly payment will be credited to the down-payment for the purchase of the home at the end of the lease.

At the end of the lease-term, the tenant/buyer has the option to purchase the house. The lump sum accrued from the initial deposit and the rent credit are only released to the buyer as down-payment on the house should the tenant/buyer decide to proceed with the purchase. The tenant/buyer is responsible for securing the necessary mortgage loan to finalize the purchase the home.

As is usually stated in the lease purchase contract, the option fee and accrued rent credit are both non-refundable should the tenant/buyer decide to walk at the end of the lease. The tenant/buyer is released from responsibility for the sale, and the landlord/seller is responsible for finding new tenants.

Should the tenant/buyer be unable to purchase the house due to a lack of financing, the tenant and landlord can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.

Bennefits

Lease-purchase contract agreements are open source in nature and flexible to the needs of the tenant/buyer and landlord/seller. Lease-purchase contracts are popular with tenant/buyers who have poor credit scores, lower savings for down payments, or people who are moving from one city to another but are pending a sale on their previous home. They are great for sellers who are having difficulty securing tenants for their properties, which can be common when a house is for sale.

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Steve Vennemann

Contract for deed Broker

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