If you want to buy a home or an
apartment for investing point of view. To buy a new home, you need a good
credit score and cash for down payment. Without the ample of money, you cannot
buy a new home. This route is tough for you if your credit score is low.
There is an alternative way to own a new
home. A rent-to-own agreement, is an agreement in which you rent a home
for a certain amount of time, with the option to purchase it before the lease
expires. Rent-to-own agreements has two parts:
- A standard lease agreement.
- An option to buy.
We will discuss below the whole process
of rent-to-own agreement. It is less tough as compared to simple renting and
buying. For this you have to take some extra precautions to protect your
interest. By taking precautions, you will get to know whether the deal is good
for you or not.
You Need to
Pay Attention on Option Fee
In a rent-to-own agreement, you as the buyer has to pay
one-time fee to seller. This fee is usually non-refundable and upfront called
the option fee, or option consideration. This fee will give you the option to
buy the house in the future. The option fee is generally negotiable. You can
negotiate the fee with your agent and go with the option that suits you
Read the
Contract Carefully
There are two different things in the contract. Some contracts have Lease
Option while some have Lease Purchase. These are types of rent-to-own
agreement.
The lease - option
contract gives you the right,
but not the obligation, to buy the home when the lease expires. If you do not
want to buy the property at the end of the lease, the option simply expires. You
can leave the buying option without any obligation to continue paying rent or
to buy.
Lease-purchase contract gives you some legal obligations at
the end of the lease. It does not matter you can afford it or not. You cannot
walk away without buying the home after the expiry of lease.
Purchase
Price
Rent-to-own agreements should specifically clear in providing
you knowledge about when and how the home’s purchase price is
determined. Sometimes, you and the seller will agree on a purchase price when
the contract is signed even at a higher price than the current market
value. While in some other situations the price is determined when the lease
expires, based on the property's current market value.
Know What
Your Rent Buys
You will have to pay rent throughout the lease time. The
dilemma is whether a portion of each payment is applied to the eventual
purchase price or not. Most of the often, the rent is slightly higher than the
going rate for the villa to make up for the rent credit you receive.
Maintenance:
It might not be like Renting
You may be responsible for maintenance of the property
and paying for repairs. It depends on the contract. Generally, the maintenance
and repair are the landlord's responsibility. So, read the copy of your
contract keenly. Eventually, the sellers are responsible for any Home
Owner Association HOA fees, taxes and insurance. Landlords typically choose the
high fee to cover these costs. Make yourself sure that the repair and
maintenance requirements are clearly mentioned in the contract.
Buying the
Property
What happens to your property, it partly depends on which
type of agreement you signed. I have mentioned above, the two options: Lease
option contract and Lease purchase contract. If you have selected a
lease-option contract and now you want to buy the property, you will most probably
need to obtain a mortgage in order to pay the seller the full amount. In this
case you do not have to buy the house. Here you are unable to secure financing
by the end of the lease term.
If you have
selected the Lease purchase contract the results will be vice versa.
