mortgage

Rent to own: When it's not time to buy

"This transaction gives the buyer (the advantage) to lock in the price in advance, but if the home value goes down, he can choose to renegotiate the deal or move on," says Tamkin.

Buyers could also get the upper hand -- and sellers, the disadvantage -- if the home's value rises more than expected. Say the house is currently valued at $200,000 and the buyer and seller agree to a purchase price of $230,000 in three years. If the home ends up worth $250,000 in three years, the seller loses that extra $20,000.

What to put in the contract

There's no standard rent-to-own contract; each one is negotiable. This arrangement can be complex, and every state has its own regulations. Sellers and buyers should consult with an attorney or real estate agent beforehand to understand the financial implications, says Tamkin.

Renters also should meet with a mortgage lender at the start of the rent-to-own agreement so they know what it will take to qualify for a loan. Before you sign a rent-to-buy deal, pretend you're buying the house outright, Phipps says. Get an appraisal and a home inspection. Phipps recommends checking with a listings broker to ensure the house isn't in foreclosure or a short sale.

"Include terms stating that your rent money goes toward real estate taxes, mortgage and insurance to avoid foreclosure," says Tamkin. "Have an attorney review the title to the home to determine there are no impairments that will prevent you from purchasing the home."

On the seller's side, Tamkin recommends contract terms that include a security deposit and rights to evict the tenant should he stop making payments.

Other details to spell out are how the money will be held by the sellers and under what conditions the sale will take place. Tamkin says both parties also should consider maintenance, repairs and home improvement, and who pays for them.

There may be negatives about rent-to-own deals, but there are upsides for both parties in a rocky economy.

"Someone who can cover your home expenses is better than having a vacant home," says Tamkin. "And it's a stepping stone for renters who dream of owning their own home."

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