Are you thinking about signing a Rent-to-Own agreement because you’re not eligible for a mortgage today? 🏡
Rent-to-Own can seem like a great option for those who are not quite ready to buy a home — maybe your credit score isn’t where it needs to be, or you haven’t saved up enough for a down payment yet. The idea of living in your future home while working toward ownership is appealing. However, I’ve seen too many cases where clients came to me wanting to secure a mortgage to buy out the property — and the Rent-to-Own contract was NOT set up correctly.
Unfortunately, this can result in lost money, missed opportunities, and even legal trouble. That’s why it’s crucial to protect yourself from the beginning.
✅ Key Conditions to Include in a Rent-to-Own Contract
Before you sign a Rent-to-Own agreement, make sure these essential conditions are part of the contract:
1. Back-Dated Contract
The contract should be backdated to reflect the original agreement terms. When you apply for a mortgage, lenders need to see that the contract has been in place for a certain period. Without proper backdating, you could face challenges getting approved.
2. Purchase Price Locked In
Ensure that the purchase price is established at the time of signing. If the contract allows the seller to adjust the price later, you might end up paying more than the market value when it’s time to buy. A locked-in price gives you financial certainty and protection against market fluctuations.
3. Provision for Refund of Extra Money
Many Rent-to-Own agreements require you to pay an amount over and above the monthly rent, which is credited toward your future down payment.
👉 But what happens if the sale doesn’t go through?
Make sure the contract includes a clear provision for a full or partial refund of these extra funds if the sale doesn’t proceed — otherwise, you could lose a significant amount of money.
4. Extra Money Held in a Trust Account
Instead of paying the extra down payment funds directly to the landlord, try to negotiate having those funds held in a trust account. This ensures that the money is protected and accounted for properly, rather than relying on the landlord’s personal handling of the funds.
5. Supporting Letter of Economic Rent
A certified appraiser should provide a letter confirming the fair market rent at the time of signing the agreement. This will help strengthen your mortgage application down the road and provide additional proof that the agreement terms are reasonable.
🚨 Protect Yourself From Poorly Written Contracts
In my experience, it’s often the landlord who drafts the Rent-to-Own contract — and guess what? They typically do NOT mention a refund of extra down payment funds if the sale doesn’t go through. This can leave tenants financially vulnerable if things don’t work out.
That’s why it’s so important to review the contract carefully and ensure these key conditions are included. A well-structured Rent-to-Own agreement can help you transition smoothly into homeownership — but a poorly written one can set you back financially and emotionally.
💡 Thinking About a Rent-to-Own Agreement? Let’s Talk!
If you’re considering a Rent-to-Own contract or need help securing a mortgage down the road, I’m here to guide you. Let’s make sure your contract works for you — not against you.
📲 Reach out today and let’s discuss your options!
🙎♀️ Jaspreet Bansal, Mortgage Professional
Disclaimer: I’m not expert in rent to own program, but I’m sharing my knowledge from past experience and challenges I faced for my clients.