If you’re like most home buyers, you’ll need a mortgage to finance buying a new house. Rent To Own Homes Bahamas
To qualify, you need to have a good credit score and money for a down payment.
Without these, the traditional route to home ownership may not be an option.
There’s an alternative, however: a rent-to-own agreement, where you lease a home for a specific period of time, with the option to purchase it before your lease expires.
Rent-to-own agreements consist of 2 parts: a standard lease agreement and an choice to purchase.
Following is a rundown of things to look for and how the rent-to-own process works.
It’s more complex than renting and you’ll need to take additional precautions to guard your interests.
Doing so can help you figure out whether the deal is a good option if you’re looking to buy a home.
You Will Need to Pay Option Money
In an rent-to-own agreement, you (as the buyer) pay the vendor a one-time, generally nonrefundable, upfront fee called the alternative fee, alternative money or alternative consideration.
This cost is what provides you the choice to buy the home by some date later on.
The option fee can be negotiable, since there’s no standard rate.
Still, the fee typically ranges between 2.5% and 7 percent of their cost.
In some contracts all or some of this alternative money can be placed on the ultimate cost at closing.
Read the Contract Carefully: Lease Option vs. Lease Purchase
It is important to note that there are various sorts of rent-to-own arrangements, with some becoming more consumer friendly and more flexible than others.
Lease-option contracts give you the best — but not the obligation — to purchase the home when the lease expires.
Should you opt not to purchase the property at the conclusion of the lease, the option only expires, and you may walk away without any obligation to keep on paying rent or to buy.
To have the option to purchase without the obligation, it has to be a lease-option agency.
Since legalese may be challenging to decode, it’s always a good idea to review the contract with an experienced real estate attorney prior to signing anything, which means you understand your rights and what you are getting into.
Establish the Purchase Price
Rent-to-own agreements must specify when and how the property’s cost is set.
Sometimes you and the vendor can agree on a purchase price once the contract has been signed — often at a greater cost than the current market value.
In other situations the price depends upon when the lease expires, based on the property’s then-current market value.
Many buyers prefer to”lock in” the buy price, particularly in markets where housing prices are trending upward.
Know What Your Rent Buys
You’ll pay rent through the lease term.
The question is whether a part of each payment is placed on the ultimate purchase price.
Generally, the rent is a little greater compared to the going rate for your area to make up for the rent credit you receive.
But make sure to understand what you are getting for paying for that premium.
Care: It Could Not Be Like Renting
Based on the details of the contract, you might be accountable for maintaining the house and paying for repairs.
Typically, this is the landlord’s duty thus read the fine print of your contract carefully.
As sellers are finally responsible for any homeowner association fees, insurance and taxes (it is still their property ( after all), they typically opt to pay these costs.
Either way you’re going to need a tenant’s insurance policy to cover losses to personal property and provide liability coverage if a person is injured while in the home or in case you accidentally injure somebody.
Make certain maintenance and repair needs are clearly mentioned in the arrangement (ask your lawyer to explain your duties ).
Keeping up the home — e.g., mowing the yard, raking the leaves and cleaning out the gutters — is very different from replacing a damaged roofing or bringing the electrical around code.
Whether you are going to be responsible for everything or simply mowing the lawn, have the home inspected, order an assessment and make certain the real estate taxes are up to date before signing anything.
Purchasing the Home
What occurs when the contract finishes depends partly on which sort of agreement you have signed.
If you have a lease-option contract and want to buy the property, you will likely need to find a mortgage (or other financing) so as to cover the seller in full.
Conversely, in the event you decide not to get the house — or are unable to secure funding by the end of the lease duration — the alternative expires and you go from the house, just as though you were leasing any additional property.
You will pro forfeit any money paid to there, including the option money and some other lease credit got, but you will not be under no obligation to keep on leasing or to purchase the house.
If you’ve got a lease-purchase contract, then you may be legally obligated to buy the property when the lease expires.
This can be problematic for a lot of reasons, especially if you aren’t able to secure a mortgage.
Lease-option contracts are almost always preferable to lease-purchase contracts because they provide more flexibility and you do not risk getting sued if you are unwilling or not able to purchase the home 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 outstanding alternative if you’re an aspiring homeowner but aren’t quite ready, fiscally speaking.
These agreements give you the opportunity to get your finances in order, increase your credit rating and help save money for a deposit while”locking in” the home you’d like to have.
In case the alternative money and/or a proportion of the rent goes toward the purchase price — which they often do you get to build some equity.
While rent-to-own arrangements have traditionally been targeted toward people who can’t qualify for repaying loans, there is a second set of applicants who have been mainly overlooked by the rent-to-own industry: those who can not get mortgages in pricey, nonconforming loan markets.
“In high-cost urban property markets, where jumbo [nonconforming] loans are the norm, there is a sizable demand for a better solution for fiscally viable, credit-worthy individuals who can not get or do not need a mortgage however,” says Marjorie Scholtz, creator and CEO of Verbhouse, a San Francisco–based start-up that’s redefining the rent-to-own sector.
“As home prices rise and an increasing number of towns are priced from conforming loan limits and pushed to unsecured loans, the issue shifts from consumers to the home finance industry,” says Scholtz.
With strict automatic underwriting guidelines and 20 percent to 40 percent down-payment requirements, even fiscally capable individuals may have trouble getting financing in these markets.
“anything unusual — in income, for instance — frees good income earners into an’outlier’ status because underwriters can not match them neatly into a box,” says Scholtz.
This includes people who have nontraditional incomes, are self explanatory or contract employees, or have unestablished U.S. credit (e.g., overseas nationals) — and people who only lack the huge 20% to 40% down payment banks require for nonconforming loans.
High-cost markets are not the obvious place you’ll locate rent-to-own possessions, which is what makes Verbhouse odd.
But all potential rent-to-own home buyers might gain from attempting to compose its consumer-centric features into rent-to-own contracts:
The option fee and a portion of every lease payment buy down the buy price dollar-for-dollar, the lease and price are locked in for up to five decades, and participants can build equity and catch market appreciation, even if they choose not to purchase.
According to Scholtz, participants can”cash out” at the reasonable market value: Verbhouse sells the house and the participant keeps the market appreciation and any equity they’ve accumulated through rent”buy-down” payments.
Do Your Homework
Even though you’ll rent prior to purchasing, it’s a good idea to exercise the same due diligence as though you were purchasing the home outright.
If you are considering a rent-to-own home, be sure to:
- Pick the Appropriate terms. |} Input a lease-option agreement as opposed to a lease-purchase arrangement.
- Get help. Hire a qualified real estate lawyer to explain the contract and also help you know your rights and duties. You might want to negotiate a few points before signing or avoid the bargain if it’s not favorable enough for you.
- Be sure to understand:
- the obligations (what is due when)
- the alternative fee and lease payments — and how much of each applies towards the cost
- the way the buy price depends
- the way to exercise the option to buy (by way of instance, the seller could ask you to give advance notice in writing of your intent to purchase )
- whether pets are permitted
- who’s responsible for upkeep, homeowner association dues, land taxes and the like.
- Order an independent appraisal, get a property review, be certain the property taxes are up to date and ensure there are no liens on the property.
- Check the seller’s credit report to search for signs of financial problem and get a title report to realize how long the vendor has owned it the longer they’ve owned it and the more equity, the greater.
- Dual check. Under which conditions will you reduce your option to purchase the home? Under some contracts, then you eliminate this right if you’re late on just 1 lease payment or if you are not able to notify the seller in writing of your intention to purchase.
A rent-to-own agreement allows would-be home buyers to move to a home right away, with several years to focus on enhancing their credit scores or saving to get a down payment before trying to have a mortgage.
Naturally, certain terms and conditions must be fulfilled, in agreement with the rent-to-own agreement.
Even if a property agent assists with the procedure, it is vital to seek advice from an experienced real estate attorney who can explain 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 Bahamas, hopefully you found what you were looking for.