There are many young people who are starting their families and looking for a new home. While they may have careers that are starting and are willing too buy a house, they might not have the money needed for a down payment on a new property. Their bank may not be willing to grant a mortgage until they show more years of good credit as well. One option that could be available is a rent-to-own agreement.
Rent To Own essentially means that you re renting the home before you own it. When you pay rent off each month for a few years, some of that money is put towards the down payment on the property. BY affecting the purchase price this way, you can pay portions to the amount rather than all at once. After a few years, two or three usually, you can then purchase the home for an agreed upon price. By then you may also need a mortgage loan.
The laws can vary state to state on contracts. However, rent to own agreements can usually be determined by the buyer and seller. It is important that you have an expert real estate attorney there to represent you and act in your interests. Essentially, you have to come to an agreement on what the right price for the house is, for a sale that is happening two to three years. You can negotiate back and forth, but the seller may want more than the current price for the property. When signing the lease, the buyer then pays an amount of about three percent that is called an option, due to the seller removing the house from the current market. The lease will also inform the buyer of how much of the rent is actually going to the purchase. This is called a credit and may make the rent more than the average for that area or market, however the buyer is already in the home rather than having to move.
There are some negatives to this agreement. The buyer will pay a higher rent and could lose the credit they have if they miss a payment. They could also lose out if they can’t get a mortgage or change their mind on buying the house. With a proper lease, the buyer can avoid these traps. Your lease agreement should spell out clearly what the penalties are for late payments and when rent payments are due. The buyer also needs to know when buying the property is an option or must be done and what in the house (such as appliances) comes with the purchase. Also it’s good to know who will pay if there are maintenance issues in the home. Make sure to get the home properly inspected and run a credit check on the seller if you can. Remember that the home is still a rental, so think twice about any major updates or changes.
Follow your local listings or ask realtors for the area if you are looking for rent-to-own properties.
