If you are planning to rent a home in Florida and may want to purchase the property in the future, a lease with an option to buy may be right for you. With this type of contract, careful review is critical to avoid common pitfalls.
Review the process of buying a rent-to-own home before moving forward with this type of arrangement.
The lease should include language that gives the renter the option to purchase the home at any time within the lease period, which typically ranges from one to three years. During that time, the contract prohibits the homeowner from selling the property to a third party. The contract should also designate responsibilities for utilities, home repairs and other aspects of your occupation of the property.
Typically, the homeowner requires the renter to pay a deposit in exchange for the option to buy, known as “option money.” This varies from as little as a few hundred dollars to 20% of the value of the home, which would be $40,000 for a home worth $200,000.
In addition to monthly rent, you will also pay a designated amount each month toward your down payment to purchase the property. If you decide not to buy the property, you can let the lease expire, but the homeowner will keep the option money and the down payment money.
You and the homeowner can either agree on a purchase price for the home or indicate in the contract that the price will depend on the market value when you decide to exercise your purchase option. The latter arrangement can protect you from decreasing value, while the former lets you lock in a price in an increasing market.
If you decide to enter a home lease with option to purchase, make sure that you will qualify for a mortgage by the time the lease expires. Otherwise, you will likely forfeit your down payment and option money.