How Rent to Own Works in Huntsville AL

James Anderson

September 2, 2022

According to listwithclever.com, real-estate prices are above average, and mortgage rates are rising in Hunstville, Al. It is, however, a buyer's market since the supply of homes is more than the demand.

This gives an opportunity for those hoping to purchase a home in today's competitive and uncertain real estate market. Purchasing a home by initially renting it is possible through a rent-to-own agreement.

To do it here is How Rent to Own Works in Huntsville, AL.

How does rent-to-own work?

A rent-to-own agreement allows people to get into homeownership by renting a home first. At the end of your lease, you will have the opportunity to purchase the home at a set price.

A rent-to-own agreement gives tenants the option to "test drive" a home for a specified period of time before making a final decision on whether or not to purchase it. Meanwhile, the owner of the property can exercise the buy option to secure a sale price and attract a reliable tenant.

Some rental agreements allow you to put a portion of your monthly rent toward the buying price, whereby your rent payments serve as a down payment in a way. While different rules govern rent-to-own contracts in each state, most rent-to-own agreements are structured whichever the buyer/tenant and seller/landlord see fit.

When the sale is scheduled for several years down the road, it might be difficult to settle on a purchase price that pleases both sides. The seller may ask for an amount higher than the property's fair market value if, for instance, the local real estate market is trending upward.

An appraisal is, therefore, necessary in some situations whereby an appraiser establishes a home's value as part of the purchase agreement. If this is the case, the buyer or tenant should insist on being able to hire their own appraiser and on a process to settle any disagreements that may arise between the two estimates.

When signing the contract, the conditions of the sale should be specified, such as tenant and landlord responsibilities, as well as whether the buyer is buying the property "as is" or whether the seller is expected to make any necessary repairs or improvements. The state of Alabama has laws stating the relationship between tenants and landlords.

The option fee

The buyer/tenant signs a real estate purchase option contract with the seller where non-refundable option fees are paid. This is a contract that grants the buyer the only right to make a purchase of a specified piece of real estate.

The option fee is the price paid by the buyer to the seller for the right to acquire the property from the seller under the terms and conditions set forth in the option to purchase. The seller cannot sell the property to anyone else once an option has been granted to a buyer, as the buyer bears the cost of the option to buy this property.

The Option Fee is usually set at 1% to 5% of the property's sale price, though the two parties can negotiate this. During the term of this contract, the seller grants the purchaser the right, but not the obligation, to purchase specified property from the seller at a predetermined price and within a specified time frame.

The escrow account

During the agreement, you will most likely use an escrow account which has its pros. A financial instrument, typically an account maintained by a third party on behalf of two contracting parties, is known as "escrow."

The seller may suggest that their attorney oversee escrow, but it's safer to have a neutral third party like a bank or lender handle the funds and have both you and the seller sign any withdrawals. A third party acts as custodian of the funds in an escrow account until the terms of a contract are met.

This is a possible means of keeping the money safe.

The lease and lease-purchase contracts

House Model In Grass

During a rent-to-own arrangement, there are generally two options involved, the lease option and the lease-to-purchase option.

The lease's terms are normal, including the requirement that you pay a monthly fee in exchange for the right to use the property as your principal residence. Your rights and responsibilities as a tenant are spelled out in the lease for both options.


Lease-option agreements often include the tenant paying the owner a small monthly sum in exchange for the right to purchase the home at the conclusion of the lease period. It's basically renting out the home as a regular tenant with the possibility of purchasing the house, which you're not obliged to do.

If you aren't sure right off the bat whether or not you want to buy the house, this is a great method to proceed because you have the freedom to terminate the option and move on to other options. It will be specified in the lease agreement what percentage of the lease option or rent payment will be applied to the purchase price.

Keep in mind that the option price and the rent due each month are also negotiable. When your lease ends, you and the seller will negotiate a price for the property's purchase.

If you decide to purchase the home at the end of your lease, a percentage of your monthly rent payments may be used for the down payment.

Lease-purchase option

With the lease-to-purchase option, you can buy the house at any moment during or after your lease, and it details the timeframe for determining the home's purchase price and how rent may be allocated toward the purchase price.

You can either settle on a price before signing a lease, or you can agree on a date for a house appraisal and settle on a price once it is complete. If you don't buy the house, the seller can sue you for breaking the purchase agreement.

Under a lease-purchase arrangement, the lessee is obligated to acquire the property at the end of the lease term, meaning that if you don't get pre-approved for a mortgage during your lease, you'll lose the home and any rent credit you've built up when the lease expires.

Rent-to-own tips: How rent-to-own works in Huntsville AL

  • Sign your most appropriate terms

Before signing the lease agreement, make sure to negotiate and talk about terms with which you would be okay during the lease period. Don't go into a lease without first considering your options, including a lease option and a lease purchase.

A lease-option agreement can be useful if you are on the fence about whether or not to make a purchase of the house, and both options should outline who is responsible for the landlord or tenant responsibilities earlier mentioned.

  • Consult with a real estate attorney

The state of Alabama requires a licensed attorney to prepare and draft all legal documents in a real estate transaction (Ala. Code § 34-3-6(c)). Consult a lawyer to review the contract when you're ready to move forward.

Since you're also purchasing the land on which the house sits, the state of Alabama needs a deed transfer and a bill of sale to be signed by the buyer and seller. The buyer also pays real-estate transfer tax according to state laws.

  • Get a home inspection.

Before agreeing to the purchase price, have a house inspector look it over, and have the seller foot the bill for any repairs or maintenance needed. This is important, especially if you plan on buying the house as-is without any renovation.

You can have a renovation at the end of the lease period covered by the seller in the contract. This can be agreed upon by both parties and signed in the contract.

If there are severe problems with the house that will be expensive to fix later on, an inspector can find them, and if you don't buy, you won't have to worry about being sued for damages.

What's next after moving into a rent-to-own property?

 A Key In Hand For Post: How Rent To Own Works In Huntsville Al

You're renting an apartment or house, but your lease may impose stricter regulations than those normally applied to tenants.

Before moving to the property, clearly read your contract so that you know the tenant's responsibilities as well as the landlord's responsibilities. Tenants may be required to take on the role of owner in some contracts by handling maintenance and repairs.

Depending on the terms of your rent-to-own agreement, you may be able to buy the house at the conclusion of your lease, or you may be contractually obligated to do so. Get the ball rolling on the mortgage application process as soon as possible.

In Huntsville, both the landlord and tenant have responsibilities and rights. Even if a rental agreement specifies otherwise, these rights still exist.

As a general rule, AL Code § 35-9A-204 governs a landlord's duty to provide a habitable dwelling in single and multi-family homes. Tenants' rights when repairs are not done in a timely manner are spelled forth in this law, which is also known as the "implied assurance of habitability."

The landlord has two weeks to conduct maintenance, and before entering the premises, they must give notice of at least two days' duration unless the situation is urgent.

Tenants have the legal obligation to pay rent as well as adhere to the terms of the contract. The landlord can evict tenants when they violate terms they signed during the agreement but not when they violate terms they did not sign or that were added later without their signature.

The percentage of the rent that will go toward the purchase of the home, whether or not the purchase is an option, and whether or not the appliances will be included in the sale are also important details to examine.

Where to find rent-to-own homes in Hunstville AL

If you've decided that a rent-to-own home is your best fit, there are various sites that list

  1. apartments.com
  2. renttoownlabs.com
  3. homefinder.com
  4. zillow.com

There are also other alternatives to rent-to-own. The rent-to-own model doesn't work for everyone as there are costs and hazards involved in a rent-to-own home purchase that you would not encounter in a more conventional transaction.

In most cases, the rent-to-own arrangement does not result in the eventual purchase of the property, and it can make you waste money that you could have invested into a house.

Buyers who know for sure they can get a mortgage and are willing to keep the lease term short may benefit from a rent-to-own arrangement, but if you're on pace to pay off other debt and improve your credit ratings, or if you need more time in your current job before you can qualify for a mortgage, can consider owner financing.

With owner financing, the buyer is exempt from having to get a mortgage, but instead, a promissory note and down payment are exchanged between the buyer and seller, promising to make monthly payments to the seller until the remaining balance of the home's purchase price is paid in full, plus interest. In essence, the seller is making a loan to the buyer.

The potential for the buyer to default on payments is a major risk for the seller. Both the buyer and the seller stand to suffer from foreclosure if the seller still owes money on the property's mortgage and defaults on their payments.


Do I need a high credit score for rent-to-own homes?

If you're just starting out in life and don't have the best credit, rent-to-own may be a nice choice to explore. There are no restrictions on rent-to-own in the United States. However, the specifics vary by state.

A rent-to-own agreement can help you get into a home sooner, even if you don't yet meet the requirements for a mortgage. For information on rent-to-own property regulations in your area, it's a good idea to contact your municipal government or consult a local real estate professional.

Should I go for the rent-to-own option?

Renting with the option to purchase is a win-win situation for some people. People who would like to buy a home but are currently unable to financially may benefit from renting with the option to buy.

In particular, people who want to settle down in the long run, those who are not quite there yet, but getting closer to being able to make a down payment, and if you presently do not qualify for a mortgage since your credit score is too low.

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