Do you want to buy a home, but you can’t afford the payout just yet? Are you feeling overwhelmed by the amount of rent you are paying for your home? Well, there is a simple way to solve this problem. You can think of going for a rent-to-own property. Generally, any person who needs more time to improve their finances before buying a home can find this kind of home-buying process useful. Rent-to-own properties are suitable for those that need to work on their credit or don’t have enough time to gather the money needed for a down payment. Rent-to-own properties mean that you can rent a property for a while, with typically a portion of the rent going towards the purchase price of the home. Eventually, after some time has passed, tenants can become homeowners and buy the home.
What are Rent-to-Own Properties?
Every rent-to-own contract operates differently. Typically, there are two ways to go about it. Tenants can buy the house as an option or a requirement. A part of the tenant’s rent goes towards the purchase price, and they can eventually buy the home. Sadly, many people overlook these types of agreements. Why? Well that can be for a number of reasons that depends on the person. For some, they simply don’t even know that it exists! However, this can be a huge game changer when it comes to people being able to purchase a house. That’s because through these agreements, people can handle buying a house in a bit of a less traditional way. It’s important to keep in mind that it’s always recommended to have a professional help you when handling these agreements. That’s because the contract can be tricky so you want to make sure you have an expert on hand that can help out!
Things You Should Consider Before Reaching An Agreement
You will need to consider a few aspects before you reach an agreement with your landlord. One of the most important things to consider is your budget and the home’s purchase price. Other things to consider are:
- Agreeing on How Much You Will Pay to Buy the Property
- Using Rent Payments For the Principal Amount
- Knowing How The Maintenance Process Will Work
- Determining What Takes Place When You Are Actually Buying the Home
- Understanding Fees
Before you enter into any kind of rent-to-own agreement, you should consider some tips to make sure it fits your budget. You can contact a real estate lawyer to learn more about the rent-to-own agreement. Furthermore, you can even do your own research and investigate the seller, along with the home you plan on buying after renting.
Agreeing on How Much You Will Pay to Buy the Property
Tenants need to agree on the purchase price when signing the agreement. Typically, this price is more than the home’s current market value. Another way to go about this is by determining the purchase price once the lease ends. This depends on the agreement, though. The most important thing about rent-to-own agreements is that the tenant needs to understand two things clearly: the process and the timeline to pay for the home’s purchase price. Since these two factors differ based on the agreement, there are many different ways a tenant can deal with them.
Using Rent Payments For the Principal Amount
Did you know that you need to pay an option fee or a portion of it during the purchase process? Yes, that’s right. It’s an upfront, nonrefundable fee that can go towards the home’s total purchase price. You should know that paying for rent-to-own properties can differ from the regular rental process. For example, you can pay $700 in monthly rent for the next four years. If 20% of the rent goes towards buying the home, then you would have put $6,720 towards the purchase price.
Knowing How The Maintenance Process Will Work
Tenants might be in charge of repairing the home, since the tenant will own the home when the lease expires. You need to make sure that you know what to expect with maintenance, which is determined in the agreement. With conventional lease agreements, the landlord is responsible for managing most repairs on the property. However, that is not necessarily the case with rent-to-own homes.
Determining What Takes Place When You Are Actually Buying the Home
How you buy the house depends on the actual agreement, which could go one of two ways. That would be both an option to buy and a requirement to buy the home. The requirement to buy the home means that it is your legal obligation to finance and buy the home, no matter what your financial situation is. If you cannot make it happen, then you should know that you could face penalties.
For the option to buy a home, you can either buy the house at the end of the lease or you cannot. You do not necessarily need to buy the home. However, if you don’t buy the home, then you will need to move out.
The option fee is one of the many fees that you need to consider when it comes to a rent-to-own agreement. You can usually negotiate this fee, which is generally from 1% to 5% of the purchase price of the house. However, you should know that it is a nonrefundable fee that you pay upfront to be able to buy the home later on.
Buying a home might be difficult, but it doesn’t need to be. Luckily, there are different ways to get around the standard home-buying process. You can even consider the rent-to-own process, which involves making rent payments where a percentage would go toward the purchase price of the home. However, you need to keep in mind that there are upfront fees and home maintenance to think about.
As tempting as the rent-to-own process sounds, you should make sure that you choose the right home for your budget and your comfort. Remember that this could be your forever home, so choose wisely!