Dear aspiring home buyer,
Do you ever wake up wondering, “I have made a huge mistake by not having a house of my own?”
This might be the scenario for most people who are struggling with the finance problem, the problem of mortgage, good credit score, liability of student loan, and lacking any other qualifications that are required to own a house.
Look, the aim of the blog is not to criticize you but to help you in taking the giant leap towards owning a house. Wondering how? Keep reading…
Rent-to-own homes are one of the best options to own your house where you sign a deal to pay rent for a property for a certain period with the opportunity to buy it in the near future. In some cases, the agreement has the clause to buy later. Here the future owner will be paying the price of a property through the rent, which will a bit higher than usual rent.
Also Read: Types Of Home Loans You Must Know About
How does the process Work?
Foremost, it is essential to understand that there are no industry standards for this agreement. The terms are mutually agreed by both the parties i.e., the buyer and seller. Keep reading to know about important things while selecting a rent to own home.
Nonrefundable Upfront Fees
The upfront fee is the amount of money that the buyer has to pay before the acquisition of property. Generally called the option consideration, option money, or option fee. It gives the assurance of future date to buy the property. There is no fixed standard of upfront fees but can vary from 2.5% and 7% of the purchase price. This one-time fee is usually treated as non-refundable in nature.
Agreement on the Purchase Price
It is important for the buyer as well as the seller to sign on the agreement. The contract should have specific details about the date of purchase and the final purchase price. In some cases, the price of a property is higher than the market price, while others decide the property price on the expiry of the lease agreement. Even buyers prefer “lock-in” term if the price of the property is a soaring up. Lease to own homes is a trending way to live in your own dream home.
Effect on Rent
During the lease period, you have to pay the rent. While signing the rent to buy house agreement, make sure to discuss if the rent you are paying will be added to the principal amount of the property or not. In case, where if the seller agrees on counting rent in the property price, rent is usually higher. To understand better, let’s take an example where you are paying $1,000 each month in the form of rent for four years, and conditioned that 25% of the total will be credited towards the principal amount of the property. So indirectly you will be paying $9000, ($1,000*0.25x 36= $9000). While doing this, make sure you are getting the best return for paying the premium rent after all these years.
Depending on the terms of the lease contract, a tenant may have to bear the cost of maintaining property and repair. Generally, it is the responsibility of the owner to take care of maintenance and repair expenses. Maintaining the property includes cleaning of gutters, keeping garden clean, while repair includes fixing a damaged roof, fixing the living room air conditioner. Both of these activities bear different costs and responsibilities. Also, make sure that before signing the contract, all the property taxes are paid up to date; otherwise, the extra cost can add more burden to your finance.
End of the Contract
What happens when the contract comes to an end? The answer is, it all depends on the type of agreement you have signed. In the lease option contract and wish to buy the rental property, then there are chances that you need to mortgage something to settle the full payment, or if you want to opt-out, then you need to move out of the home just like any renting property. In this case, you’ll be most likely to forfeit the money you had paid as upfront fees and others during the contract.
But in case of a lease-purchase contract, you will be obliged to buy the property, even if you don’t want to buy it. So it is always advisable to go for lease-option rather than lease-purchase as it offers more flexibility and less risk involvement.
Before You Sign the Contract
If you have made up your mind to go for rental homes finally, then it is mandatory to go through these points before signing the contract:
- Get the help of qualified and experienced real estate attorney to understand the rights and obligations of the contract. With the help of a legal advisor, you can also bargain or negotiate on certain terms to turn the deal in your favor;
- To sail the boat on a safer side, always go for lease-option agreement;
- Before making up mind, go for the thorough research of the property you intend to buy to ensure that there is no lien on the property, and all taxes are paid;
- To prevent the frauds, always go for thorough research of the seller to ensure that no property trouble and other problems.
Time to Turn a Dream into Reality
Tenant needs to do homework before signing the rent to buy a house deal. Road to buy a home in a traditional way takes lots of time, so why not go for rent to own homes? Take the help of a real estate attorney to grab the best deal. Wishing you good luck in finding your dream home. For all the finance and real estate queries, FinanceShed is your destination.