If you are like most home buyers, then you will require a mortgage to finance the purchase of a new property. Rent To Own Homes Anchorage Alaska
To qualify, you have to have a good credit score and money for a down payment.
Without these, the traditional path to home ownership may not be an option.
There’s an alternative, however: a lease agreement, where you rent a house for a particular amount of time, using the choice to buy it before the lease expires.
Rent-to-own agreements include two parts: a typical lease agreement plus an choice to purchase.
Here is a rundown of things to look for and the way the rent-to-own process works.
It’s more complicated than leasing and you will have to take additional precautions to protect your interests.
Doing so will help you figure out if the deal is a good choice if you’re trying to get a house.
You Need to Pay Option Money
In an rent-to-own agreement, you (as the buyer) pay the seller a one-time, generally non refundable, upfront fee called the option fee, option money or option consideration.
This commission is what gives you the choice to obtain the home by some date later on.
The option fee can be negotiable, since there’s no typical speed.
Still, the fee typically ranges between 2.5% and 7 percent of their purchase price.
In some contracts all or some of this alternative money could be put on the ultimate purchase price at closing.
Read the Contract Carefully: Lease Option vs. Lease Purchase
It is essential to remember that there are different types of rent-to-own deals, with a few being more user friendly and flexible than others.
Lease-option contracts give you the right — but not the obligation — to buy the house when the lease expires.
If you choose not to purchase the property at the end of the lease, the choice simply expires, and you can walk away without any obligation to keep on paying rent or to buy.
With these you might be legally obligated to get the house at the conclusion of the rental — if you can afford to or not.
To have the choice to purchase without the responsibility, it needs to be a lease-option agency.
Because legalese can be difficult to decode, it’s always a fantastic idea to assess the contract with a qualified real estate attorney before signing anything, so you understand your rights and precisely what you’re getting into.
Establish the Purchase Price
Rent-to-own agreements should specify if and how the home’s cost is determined.
In some cases you and the vendor can agree on a cost once the contract is signed — often at a greater price than the current market value.
In other situations the price depends upon when the lease expires, depending on the home’s then-current market worth.
Many buyers choose to”lock ” the purchase price, particularly in markets where housing prices are trending upward.
Know What’s Rent Buys
You’ll pay rent throughout the lease term.
The issue is whether a portion of each payment is placed on the eventual purchase price.
Generally, the lease is a bit greater compared to the rate for the region to make up for the lease credit you receive.
But make sure to know what you’re getting for paying that premium.
Maintenance: It May Not Be Like Renting
Based on the details of the contract, you might be responsible for maintaining the home and paying for repairs.
Because sellers are ultimately accountable for any homeowner association fees, taxes and insurance (it’s still their home , after all)they typically decide to pay these costs.
Either way you are going to require a tenant’s insurance policy to cover losses to personal property and provide liability coverage if someone is injured while at the home or if you accidentally injure someone.
Be sure maintenance and repair requirements are clearly stated in the contract (ask your attorney to explain your responsibilities).
Keeping the house — e.g., mowing the yard, raking the leaves and cleaning the gutters out — is quite different in replacing a damaged roofing or bringing the electrical around code.
Whether you’re going to be accountable for everything or just mowing the yard, have the home inspected, arrange an assessment and be certain the real estate taxes are up to date prior to signing anything.
Buying the Home
What occurs when the contract finishes depends upon which sort of agreement you have signed.
If you have a lease-option contract and would like to obtain the property, you are probably going to need to get a mortgage (or other funding ) in order to pay the seller in full.
Conversely, in case you opt not to buy the home — or are unable to secure funding by the close of the lease duration — the alternative expires and you move from the home, just as though you were leasing any other property.
You will pro forfeit any money paid to that point, for example, alternative money and some other lease credit got, but you won’t be under some obligation to continue leasing or to purchase your home.
When you have a lease-purchase contract, then you may be legally obligated to purchase the property when the lease expires.
This can be problematic for several reasons, especially if you are not able to procure a mortgage.
Lease-option contracts are nearly always preferable to lease-purchase contracts because they offer more flexibility and also you do not risk getting sued if you’re unwilling or not able to buy the house when the lease expires.
Who’s|Who is|Who Is} an Ideal Candidate for Rent-to-Own
A rent-to-own agreement can be an excellent alternative if you’re an aspiring homeowner but aren’t quite ready, fiscally speaking.
These arrangements give you the opportunity to get your financing in order, increase your credit rating and save money for a down payment while”locking in” the home you’d love to have.
In case the alternative money or a proportion of the lease goes toward the cost — that they often do — you get to build some equity.
While rent-to-own arrangements have traditionally been geared toward people who can not qualify for conforming loans, there is a second set of applicants who have been mostly overlooked by the rent-to-own industry: those who can’t get mortgages in expensive, nonconforming loan markets.
“In high-income urban property markets, in which jumbo [nonconforming] loans are the norm, there is a sizable requirement for a better alternative for financially viable, credit-worthy folks who can’t get or do not want a mortgage nonetheless,” says Marjorie Scholtz, creator and CEO of Verbhouse, a San Francisco–based start-up that is redefining the rent-to-own market.
“As home prices rise and more and more cities are priced out of conforming loan limits and pushed into unsecured loans, the issue shifts from consumers to the home finance industry,” says Scholtz.
With strict automated underwriting guidelines and 20% to 40% down-payment needs, even fiscally capable folks can have difficulty getting financing in these types of markets.
“Anything unusual — in income, for example — tosses good income earners into an’outlier’ status because underwriters can’t fit them neatly into a box,” says Scholtz.
This includes people who have nontraditional incomes, which are both self explanatory or contract employees, or have unestablished U.S. credit (e.g., foreign nationals) — and those who simply lack the substantial 20% to 40% down payment banks demand nonconforming loans.
High-cost markets are not the obvious place you’ll come across rent-to-own properties, and that’s exactly what makes Verbhouse odd.
But all possible rent-to-own house buyers will gain from trying to compose its consumer-centric attributes into rent-to-own contracts:
The option fee and a portion of each rent payment purchase down the purchase price dollar-for-dollar, the rent and price are locked in for up to five years, and participants can build equity and catch market appreciation, even when they choose not to buy.
Based on Scholtz, participants can”cash out” at the reasonable market value: Verbhouse sells the house and the participant retains the industry appreciation and any equity they’ve accumulated through rent”buy-down” payments.
Do Your Homework
Despite the fact that you’ll lease prior to purchasing, it is a fantastic idea to work out the same due diligence as though you were buying the house outright.
If you are considering a rent-to-own home, Be Certain to:
- Choose the Ideal terms. |} Enter a lease-option arrangement as opposed to a lease-purchase agreement.
- Get Assist. Hire an experienced real estate attorney to spell out the contract and help you understand your rights and obligations. You might choose to negotiate a few things prior to signing or prevent the deal if it is not favorable enough for you.
- Research the contract. Make sure you know:
- the obligations (what’s because )
- the alternative fee and rent payments — and how much each applies towards the purchase price
- the way the buy price depends upon
- the way to exercise your option to buy (as an instance, the seller may require that you give advance notice in writing of your intent to purchase )
- whether pets are allowed
- who is responsible for upkeep, homeowner association dues, land taxes and such.
- Order a different appraisal, obtain a home review, ensure that the property taxes are current and make sure there are no liens on your house.
- Research the seller. Check the vendor’s credit report to look for indicators of financial problem and obtain a title report to understand how long the vendor has owned it — the longer they have owned it and the greater equity, the better. Under which circumstances will you reduce your option to purchase the home? Under some contracts, then you lose this right if you’re late on just 1 lease payment or if you fail to inform the seller in writing of your intent to purchase.
The Main Point
A rent-to-own arrangement enables prospective home buyers to move into a home right away, with different years to focus on improving their credit ratings or saving to get a deposit prior to trying to acquire a mortgage.
Naturally, certain terms and requirements have to be met, in accordance with the rent-to-own agreement.
Even if a real estate agent assists with the procedure, it is crucial to consult an experienced real estate lawyer who will clarify the contract as well as your rights before you sign anything.
As with anything, always check with the proper professionals prior to entering into any type of agreement.
Thanks for taking the time to find out more about Rent To Own Homes Anchorage Alaska, hopefully you found what you were looking for.