Rent-to-own oral agreements have become increasingly popular in recent times because they offer a flexible and convenient way for individuals to buy properties without having to go through the formal process of applying for a mortgage. In this article, we’ll explain what a rent-to-own oral agreement is and what to consider before entering into such an agreement.
A rent-to-own oral agreement is a contract between two parties where the tenant agrees to lease a property from the landlord for a defined period, after which they have the option to buy the property. The tenant usually has to pay an upfront fee, known as an option fee, which grants them the right to purchase the property at a later date. The option fee is typically non-refundable and is used to compensate the landlord for holding the property and taking it off the market.
One of the primary advantages of a rent-to-own oral agreement is that it allows individuals with bad credit or no credit history to become homeowners. Since rent-to-own agreements are not mortgage loans, they are easier to obtain and allow individuals to rent and save money while they work on improving their credit score. Additionally, the option fee can be used towards the down payment when purchasing the property at a later date.
However, before entering into a rent-to-own oral agreement, it is essential to consider some factors. Firstly, oral agreements are not enforceable in all states, and it is recommended to have a written agreement. This can help protect both the tenant and the landlord from any disputes that may arise in the future.
Secondly, it is crucial to inspect the property before signing the agreement to ensure that it is in good condition. Any repairs or maintenance issues should be agreed upon and documented in the agreement.
Lastly, it is important to understand the risks associated with a rent-to-own oral agreement. If the tenant fails to pay rent or decides not to exercise the option to purchase the property, the landlord may be able to keep the option fee, and the tenant may lose all the money that they have invested in the property.
In conclusion, rent-to-own oral agreements can be an excellent option for individuals who want to become homeowners but face financial barriers. However, before entering into such an agreement, it is important to consider all the factors and consult with a real estate lawyer or a financial advisor to ensure that it is the right choice for you.