The need to pay option money
At the time of signing a rent-to-own contract you are required to pay what is called the “option money.” This is a one-time nonrefundable fee which gives you the option to buy the house at the end of the lease period. The fee could be anywhere from 2% to 7% of the house’s value.
Let us say the house you are planning to rent is valued at $300,000. If the owner asks you to pay 3% of the purchase price, you have to pay $9,000.
Once the lease period is over you have the option of buying the house from the owner. If you choose to exercise the option, you only have to pay $291,000 since you have already paid $9,000 in the form of option money.
The important thing you need to know about option money is that it is nonrefundable, which means the owner is not obligated to repay you in case you decide not to purchase the house at the end of the lease period.
