Rent-to-own, or RTO, is the term used when assets or items are rented under the condition that the item will be owned by the renter when the term is completed. RTO applies to real estate, electronics, home appliances or other tangible assets. It is important to understand that while guidelines have been set by the FTC, there are no hard and fast rules. Most contract terms are agreed upon by the back-and-forth negotiations between buyer and seller.
In terms of real estate, RTO includes a rental lease and purchase agreement in which a tenant or buyer has the right to purchase the property at an agreed-upon fixed price in the future. This type of contract became popular as the housing market made a downswing and many sellers needed to occupy property before it could be sold. Landlords also use RTO to find good tenants that will not cause much property damage, due to an intent to eventually own. Regulations of RTO vary according to state; however, according to the FTC, universal guidelines are in place due to "the considerable debate concerning the rent-to-own industry over the past decade or more, with allegations of serious consumer protection problems."
RTO situations provide tenants with immediate access to the home, for a relatively lower mortgage. The rental period gives home buyers a chance to raise their credit or get together income before purchasing the home. Credit checks are done, but are less stringent than if the tenant were buying the home outright. Additionally, some RTO agreements (for a cost) allow the tenant or the landlord to change their mind, if they determine that the home or tenant is not right for their needs.
Guidelines vary according to state. For your state, check out rtoonline.com/Law/allAds.asp.
Unlike with a conventional renter's agreement, in an RTO agreement the landlord may decide to have the tenant take on the responsibilities of repairs within the period of the rental agreement. Also, the renter is signed in at a locked price even if the value of the house decreases in the interim. There are up-front options fees that the renter must pay. This amount can be considered as part of the down payment of the home, but the fees incurred can sometimes be difficult to calculate due to figuring out the exact date of when the buyer option begins and the renter option ends. Finally, RTO is not the lowest cost method of purchasing items, and often a purchaser will spend more than if he'd simply bought in the first place.
Technically, there are no set rules for a rent-to-own contract, because most of the terms are decided by the buyer and the seller and are negotiable. This is why it is important to speak to a realtor or a lawyer who specializes in property law.
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