Rent to Own Program
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The Rent-to-Own Program: A Path to Homeownership
main principles
How Does the Rent-to-Own Program Work?
The rent-to-own program is a two-step process that combines a traditional rental agreement with an option to purchase the property at a predetermined price within a specified timeframe.
- Rental Period
You start by renting the property you're interested in, just like a regular rental agreement. However, a portion of your monthly rent payment is set aside as credits towards the eventual purchase of the home.
- Purchase Option
After a predetermined period, typically ranging from one to three years, you have the option to exercise your right to purchase the property at the agreed-upon price. The credits you've accumulated during the rental period can be applied towards the down payment or closing costs.
Benefits
Benefits of the Rent-to-Own Program
Homeownership Made Easier
The rent-to-own program provides a gradual path to homeownership, making it more accessible for those who may not have the resources for a traditional home purchase upfront.
Build Equity
A portion of your monthly rent payments is credited towards the eventual purchase of the property, allowing you to build equity from day one.
Lock in Purchase Price
The purchase price of the property is predetermined at the start of the agreement, protecting you from potential market fluctuations and rising home prices.
Try Before You Buy
The rental period gives you the opportunity to experience living in the property and the neighborhood before committing to the purchase, ensuring it's the right fit for you.
Saving & Secure
Rent-to-Own vs. Traditional Renting
$
Rent Credit for Down Payment
$
Money lost as Rent
| Year | Rent-to-Own | Traditional Renting |
|---|---|---|
| 1 | Monthly Rent: $1,800 Rent Credit: $600 Total Year 1 Cost: $30,600 | Monthly Rent: $1,500 Total Year 1 Cost: $18,000 |
| 2 | Monthly Rent: $1,800 Rent Credit: $600 Total Year 2 Cost: $28,800 | Monthly Rent: $1,500 Total Year 2 Cost: $18,000 |
| 3 | Monthly Rent: $1,800 Rent Credit: $600 Total Year 3 Cost: $28,800 Total 3 Year Cost: $88,200 | Monthly Rent: $1,500 Total Year 3 Cost: $18,000 Total 3 Year Cost: $54,000 |
Key Points:
- With rent-to-own, there is a $9,000 upfront option fee in year
1, but $600 per month ($21,600 over 3 years) goes towards the eventual down payment - Rent is higher with rent-to-own at $1,800 vs $1,500 per month for traditional renting
- Over 3 years, total costs are $88,200 for rent-to-own vs $54,000 for renting, a difference of $34,200
- However, with rent-to-own, $21,600 of the $88,200 has been accumulated as a down payment to purchase the $450,000 home after 3 years.
So, while rent-to-own has higher upfront and monthly costs, a significant portion goes towards eventually purchasing the home, which is not the case with traditional renting, where all rent payments go to the landlord.