So your homeproperty has been up for sale for months, and you can’t afford to make mortgage payments on both your old and new homesproperties. You’re desperate to sell but don’t want to lose money. Now may be time to consider making your old home a rent-to-own property.

Before entering into an agreement, sellers have to decide the sale price and rent they’ll charge for the home. Both amounts are subject to negotiation, just as a regular sale would be. But sellers and buyers need to remember that once they sign an agreement, the sale price of the house is locked in until the end of their rental term, between one and 5 years. Even if other housing prices rise or fall during that time, the original agreed-upon sale price is final.

Tenants also have to pay an option fee and then a rent premium. The rent to own fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the tenant doesn’t buy the house, the option fee becomes income for the seller. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.

Rent To Own Home Example

Here’s a typical example: The house is worth $200,000, and typical rent would be $1,000 a month. Someone who’s renting to own might pay $1,200 a month in rent and then acquire a $400 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $14,400 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $19,400 for a down payment.

This is a valuable alternative for buyers who otherwise wouldn’t have the credit score  or money saved to acquire their own home. And the sellers, eager to relieve themselves of the weight of the old home, earn this money whether or not the house sells once the leasing period expires. If, at the end of the contract the renter can’t or chooses not to buy the house, the seller keeps all of the money.

As with any business contract, there are common risks and disadvantages involved for both parties. What if somebody else wants to purchase the house for a higher price than earlier negotiated? Who’s responsible for fixing the leaky roof in the middle of the night? All these terms can be addressed up front in a rent to own agreement.

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