Rent to Own Homes – The Three Documents You Must Know

Due to recent economic struggles, many people have turned to rent to own homes as a way to have the American dream of owning their own home. Rent to own transactions, or lease option transactions as they are often called, have continued to grow each year for the last several years. Good people have had their credit “bruised” due to job loss, keeping them from qualifying for a home mortgage. This new economy has also produced a new breed of entrepreneurs, starting their own businesses out of necessity due to the job market. These new entrepreneurs have to produce a minimum of two years of documented income from this new business to qualify for a home mortgage. These “mortgage challenged” borrowers look to rent to own homes as a way to start down the path of home ownership. It’s important to understand the main documents used when you rent to own homes, so let’s take a look a them.

Important Documents when Buying Rent to Own Homes:

Residential Lease Agreement

A rent to own transaction has two parts to it, a lease agreement executed concurrently with an option to purchase agreement. The first part of the transaction is covered by the Residential Lease Agreement. This agreement sets the terms for the lease when you rent to own homes. It sets the basics like the length of the lease, the monthly payment and the obligations of both tenant buyer and landlord. It is important that you have a written document that spells out everyone’s responsibility in order to avoid confusion or disputes. Carefully review the lease agreement that you are considering so that you know what your responsibilities are (like lawn care, pest control, etc) and that you understand what they consider a default and the landlord’s remedies for such.

Option to Purchase Agreement

The second part of the transaction is the Option to Purchase Agreement. This document gives the tenant buyer the right to purchase the home they are renting at any point during the term of the Option to Purchase Agreement. Usually the term of the Option Agreement matches the term of the Residential Lease Agreement.

The option agreement sets the purchase price of the home so that you know going into the transaction what you will have to pay to buy the home. It is also sets other terms of the agreement (whether or not option consideration is considered refundable, maintenance responsibility, etc). The Option to Purchase Agreement also shows the amount of money that was paid for the right to purchase the home, called Option Consideration. This is not a down payment, though it is typically applied toward the purchase price of the house. The option agreement must also have a legal description of the property being optioned as well as the obligations that if breached will result in forfeiture of the right to purchase the home.

This or the third common document, Memorandum of Option to Purchase Agreement, HAS to be recorded at the county register of deeds. By law, the Option to Purchase Agreement also has to give you the right to cancel the transaction by midnight of the third business day of signing the agreement by both parties.

Memorandum of Option Agreement สร้างบ้าน

Often times, the owner of the home will opt to record a Memorandum of Option to Purchase Agreement rather than the actual Option to Purchase Agreement. This is perfectly legal under North Carolina General Statues. This memorandum serves to protect your interests as a tenant buyer. It produces a “cloud” on the title, letting the world know that you have the first option to purchase the home. The house cannot be sold without clearing that “cloud” so it cannot be sold out form under you. This memorandum has to be recorded with the county within 5 business days of signing the transaction.

Rent to own homes are a great way to work toward home ownership while clearing up problems that keep you from qualifying for a home mortgage now. While there may be other documents (application, disclosures, etc) associated with a rent to own transaction, the three reviewed here are the primary documents required by North Carolina law. Our hope is that this article helps educate you on these documents so that you have a better understanding when considering rent to own homes.

Port City Home Buyers LLC is one of Wilmington and Jacksonville’s premier real estate investing groups because we focus on doing things right. We specialize in distressed single family houses (foreclosures, bank REO’s, sellers who need to sell fast). We create wealth for passive investors through buying and selling real estate.

At Port City Home Buyers LLC we believe our success is a result of the relationships we’ve built and our process in buying and selling quality houses. Houses that we buy tend to be the ones that aren’t the best looking in the neighborhood. So when we buy into an area, the community embraces us because we’re helping to beautify the community they live in as well


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