Key takeaways

  • Read the whole contract, including every addendum, before you pay anything or sign anything.
  • Spend the most time on the clauses that move money or risk: price, fees, credits, repairs, default and exercising the option.
  • Anything promised out loud should be written into the contract. If it is not written down, assume it does not exist.
  • A review by a local real estate attorney is a modest cost compared with what is at stake.

Before you start

Ask for a complete copy of every document you will be asked to sign, including attachments, addenda and any separate lease. Take it home. A seller who insists you sign the same day is telling you something important. Read it with a pen in hand, mark anything you do not understand, and write your questions in the margin.

Then check the most basic fact of all: the people named as sellers should match the owners shown in your county's property records. If the home has more than one owner, such as a married couple or siblings who inherited it, all of them may need to sign for the agreement to hold up.

Clause by clause

Parties and property

Look for the full names of everyone involved, the street address and the property's legal description, which is how the land is identified in public records. Check that it includes anything you expect to come with the home, such as appliances or a garage.

Term and option period

Find the start and end dates of the lease and the exact last day you can exercise your option. Note whether the option can be extended and what an extension would cost. Put the deadline in your calendar the day you sign.

Purchase price

Is the price fixed now or set later by appraisal? If by appraisal, who chooses the appraiser and who pays? If the price is fixed, what happens if the home appraises for less when you apply for a mortgage?

Option fee

Confirm the amount, whether it is credited toward the purchase, and any situations in which it is refunded, such as the seller being unable to deliver clear title.

Rent and rent credits

Check the rent, the due date, any grace period and late fees. For credits, the contract should say how much is credited each month, where the credit is applied, and exactly what cancels it. Our guide to option fees and rent credits covers this in depth.

Maintenance and repairs

This clause is often where a rent-to-own lease differs most from a normal rental. Look for who handles routine upkeep, who handles major systems such as the roof, heating, cooling, plumbing and foundation, and whether there is a dollar limit on your share. State landlord-tenant law may still give tenants certain protections, but do not count on it overriding a clear contract.

Taxes, insurance and association fees

The owner normally pays property taxes and carries homeowners insurance. The contract should say so and ideally let you ask for proof that they are paid. If there is a homeowners association, check who pays dues and whether its rules allow rent-to-own arrangements.

Default and cure

Find what counts as a default by you and by the seller, how much notice each side gets, and how long there is to fix a problem before consequences apply. Be wary of clauses where one late payment ends your option with no chance to cure.

Exercising the option

The contract should explain how to give notice that you are buying, where to send it, the deadline, and how soon closing must happen afterward. Follow these steps exactly and keep proof of delivery.

Financing

Look for what happens if you apply for a mortgage and are turned down. In a lease-purchase especially, a financing contingency can be the difference between losing your credits and facing a claim for breach.

Title, liens and recording

The seller should be required to deliver clear title at closing, typically backed by title insurance. Ask whether a memorandum of the agreement can be recorded with the county, and whether the seller will tell you if they fall behind on their mortgage or taxes.

If the seller sells, dies or faces foreclosure

Your option should bind anyone who later owns the property, including heirs. Look for language saying so, and for what happens to your money if the home is lost to foreclosure.

Assignment, subletting and disputes

Check whether either side can transfer the contract to someone else, whether you can sublet, and how disputes are handled, for example through mediation, arbitration or court, and who pays legal fees.

Ask for proof, not reassurance

It is reasonable to ask the seller to show a recent mortgage statement and proof that property taxes are current before you sign. A seller in good standing can usually provide both.

Words worth slowing down for

  • "As is." You accept the home's current condition, including problems you have not found yet.
  • "Time is of the essence." Deadlines are strict. Being a day late can end your rights.
  • "Forfeit" and "non-refundable." Money described this way is usually gone if the deal ends.
  • "Shall" versus "may." "Shall" usually signals an obligation, and "may" a choice.
  • "At the seller's sole discretion." The seller decides, and you may have little recourse.

Getting a professional review

A local real estate attorney can tell you what the contract means under your state's law and suggest changes before you are bound by it. A home inspector can tell you what repairs may be coming, which matters if repairs are your job. A title company can search for liens and ownership problems. A HUD-approved housing counselor can help you judge whether the deal fits your finances. Each costs something, but each can prevent a far more expensive mistake.

A short checklist before signing

  • The sellers named match the county property records, and every owner is signing.
  • I know whether I have a right or a duty to buy.
  • I know the price, or exactly how it will be set.
  • I know what happens to the option fee and credits in every outcome.
  • Repair responsibilities and any dollar limits are written down.
  • Default, notice and cure periods are fair to both sides.
  • I know how and by when to exercise the option.
  • A lender has told me what I would need to qualify at the end.
  • An attorney has reviewed the contract.

Helpful official resources

These links go to official public websites. OwnRTO is not affiliated with any of them.

This guide is general educational information, not legal, financial or insurance advice. Rent-to-own rules vary by state, so talk with a qualified professional, such as a local real estate attorney or a HUD-approved housing counselor, about your own situation.