The weak housing market has prompted some home sellers to offer rent-to-buy agreements to prospective buyers.

These buyers pay an up-front fee of approximately 1 percent of the sales price for the option to buy, and all the payments they make during the rental period go toward the principal.

Most rent-to-buy agreements last for two to five years; and if the occupants decide not to go through with the purchase, they lose the option fee plus the rental payments. Those that agree to purchase the home at the price specified when the agreement was signed also lose money if property prices have since fallen.

Moreover, buyers who make late rental payments often find that these do not count toward the home purchase. According to Arizona State University finance professor Anthony Sanders, “A good rule of thumb [is to] separate the rental decision from the purchase decision.”

Source: Forbes 03/02/09