How to Obtain a Rent-to-Own Mortgage

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A Rent-to-Own mortgage is an agreement between a seller and a potential buyer, where the home can be purchased at the end of the rental period. Part of the rent payment, or an agreed upon extra amount, is applied toward the purchase price every month. Some rent-to-own agreements require a down payment, which will be used to reduce the loan amount if the buyer decides to purchase the home. If the buyer does not purchase the home at the end of the rental period, all monies are kept by the seller. The seller may also have the right to evict the buyer for non-payment, which would result in the loss of all funds paid. If you are thinking about entering into one of these mortgages, make sure you understand all of the terms and conditions before signing the contract.

What You Will Need

Here is what you may need in order to obtain a rent-to-own mortgage:

  • Down payment
  • Rent-to-Own contract
  • Attorney
  • Mortgage lender (If you buy at the end of the rental period)

Step 1 - Find a Seller Who is Offering a Rent-to-Own Mortgage

Finding a seller who is willing to offer a rent-to-own mortgage may be the most difficult part of the process. Even if you do find a seller, the home must be one that you want to own.

Inspect the property for damages or other items that cause you concern, and have these issues addressed before you enter into the agreement. Find out if the seller is going to maintain the upkeep of the property, including lawn care and general repairs.

Step 2 - Have the Seller Draw Up the Contract

The initial terms of the contract may be heavily in favor of the seller. They may require an up front down payment, and have an eviction clause included in the agreement which they can use if you fail to pay on time or maintain the property as agreed.

You can negotiate the terms of the contract, until both parties are satisfied with the final agreement. For example, if the seller does not want to include a grace period for the monthly payment, you could propose they offer you five days.

Step 3 - Take the Contract to Your Attorney

Have your attorney review the rent-to-own mortgage contract. If they have any reservations, you may want to get the seller to amend the contract before you agree to sign. If the seller is unwilling to make any changes, consider walking away from the deal.

Step 4 - Sign the Contract

Both parties should have a clear understanding of their obligations as outlined in the rent-to-own mortgage agreement. You will need to find out the monthly payment due date, and how and where the seller wishes to receive the payment.

If there is no grace period included in the monthly payment, do not be late or the seller may choose to start the eviction process.