If you’re like most home buyers, you are going to require a mortgage to fund the purchase of a new home. Rent To Own Homes In Columbia Sc
To be eligible, you should have a good credit score and money for a down payment.
Without these, the standard route to home ownership may not be an option.
There’s an option, however: a rent-to-own agreement, in which you rent a home for a certain period of time, using the option to purchase it before your lease expires.
Rent-to-own agreements include two parts: a standard lease agreement and an option to buy.
Here’s a rundown of what to look out for and how the rent-to-own process works.
It’s more complicated than renting and you will want to take more precautions to guard your interests.
Doing so will help you figure out if the deal is a great pick if you’re trying to get a home.
You Need to Pay Choice Money
In an rent-to-own arrangement, you (as the buyer) pay the seller a one-time, normally non refundable, upfront fee known as the option fee, alternative money or alternative consideration.
This commission is what gives you the option to buy the house by some date later on.
The option fee is often negotiable, as there’s no typical rate.
Still, the fee generally ranges between 2.5% and 7% of the purchase price.
In certain contracts all or a number of the option money could be put on the ultimate cost at closing.
Read the Contract Carefully: Lease Option vs. Lease Purchase
It’s essential to be aware there are different types of rent-to-own arrangements, with a few being more consumer friendly and flexible than others.
Lease-option contracts give you the best — but not the duty — to get the house when the lease expires.
In case you decide not to buy the property at the conclusion of the rental, the choice simply dies, and you may walk away without any obligation to continue paying rent or to purchase.
To possess the choice to buy without the duty, it has to be a lease-option agency.
Because legalese can be challenging to decipher, it’s almost always a great idea to examine the contract with an experienced real estate attorney before signing anything, so you know your rights and exactly what you’re getting into.
Specify the Purchase Price
Rent-to-own agreements should specify when and how the home’s purchase price is determined.
In some cases you and the vendor may agree on a purchase price once the contract has been signed — frequently at a greater price than the current market value.
In other situations the cost is determined when the lease expires, depending on the house’s then-current market worth.
Many buyers want to”lock ” the purchase price, especially in markets where home prices are trending up.
Know What’s Rent Buys
You’ll pay rent throughout the lease term.
The question is if a part of each payment is placed on the ultimate purchase price.
As an example, if you pay $1,200 in rent each month for three years, and 25% of this is credited toward the purchase, you are going to earn a $10,800 rent credit ($1,200 x 0.25 = $300; $300 x 36 months = $10,800).
Generally, the lease is a little higher than the rate for the region to make up for the rent credit you get.
But be sure you understand what you’re getting for paying for that premium.
Care: It May Not Be Like Leasing
Based upon the terms of the contract, then you could be accountable for keeping up the home and paying more for repairs.
As sellers are finally responsible for any homeowner association fees, insurance and taxes (it’s still their residence ( after all)they generally choose to cover these costs.
Either way you are going to need a tenant’s insurance policy to cover losses to personal property and supply liability coverage if someone is injured while at the home or in case you accidentally injure somebody.
Make certain maintenance and repair needs are clearly stated in the arrangement (ask your lawyer to explain your duties ).
Maintaining the house — e.g., mowing the yard, raking the leaves and cleaning the gutters out — is quite different from replacing a damaged roofing or bringing the electric up to code.
Whether you’ll be accountable for everything or just mowing the lawn, have the house inspected, arrange an assessment and be certain that the house taxes are up to date prior to signing anything.
Buying the Property
What occurs when the contract finishes depends upon which type of agreement you signed.
If you’ve got a lease-option contract and need to buy the property, you are probably going to will need to find a mortgage (or alternative funding ) in order to cover the vendor in total.
Conversely, should you opt not to buy the home — or are unable to secure funding by the close of the lease term — the choice expires and you go from the home, just as though you were leasing any other property.
You will pro forfeit any money paid up to there, including the alternative money and any lease credit earned, but you won’t be under any obligation to continue renting or to get the home.
When you have a lease-purchase contract, then you may be legally bound to obtain the property once 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 nearly always preferable to lease-purchase contracts because they offer more flexibility and also you do not risk getting sued if you are unwilling or not able to get the home when the lease expires.
Who’s|Who is|Who Is} an Ideal Candidate for Rent-to-Own
A rent-to-own agreement may be an superb alternative if you’re an aspiring homeowner but aren’t quite prepared, financially speaking.
These arrangements give you the chance to receive your money in order, improve your credit score and save money for a down payment while”locking in” the house you’d love to have.
In the event the option money or a percentage of the lease goes toward the purchase price — which they frequently do — you also get to build some equity.
While rent-to-own arrangements have traditionally been targeted toward individuals who can’t qualify for conforming loans, there’s a second set of applicants who have been mostly overlooked by the Monetary industry: people who can’t get mortgages at expensive, nonconforming loan economies.
“In high-cost urban real estate markets, in which jumbo [nonconforming] loans will be the standard, there is a big requirement for a better solution for financially viable, credit-worthy men and women who can not get or don’t want a mortgage nonetheless,” says Marjorie Scholtz, creator and CEO of Verbhouse, a San Francisco–based startup that is redefining the rent-to-own industry.
“As home prices rise and an increasing number of towns are priced from conforming loan limits and pushed into jumbo loans, the issue shifts from consumers to the home finance industry,” says Scholtz.
With strict automated underwriting guidelines and 20 percent to 40% down-payment needs, even fiscally competent people can have trouble getting financing in these markets.
“Anything unusual — in income, for example — tosses good income earners in a’outlier’ status because underwriters can’t match them neatly into a box,” says Scholtz.
Including individuals who have nontraditional incomes, which are both self-employed or contract workers, or have unestablished U.S. charge (e.g., foreign nationals) — and also those who simply lack the massive 20% to 40 percent down payment banks need nonconforming loans.
High-cost markets are not the obvious spot you’ll discover rent-to-own possessions, which is exactly what makes Verbhouse unusual.
But all possible rent-to-own house buyers will benefit from attempting to compose its consumer-centric attributes into Monetary contracts:
The option fee and a part of every lease payment buy down the buy price dollar-for-dollar, the rent and purchase price are locked in for up to five decades, and participants can build equity and capture market admiration, 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 retains the market appreciation and any equity they’ve accumulated through rent”buy-down” obligations.
Do Your Homework
Despite the fact that you’ll rent before you buy, it is a great idea to work out the same due diligence as if you were buying the home .
If you are considering a rent-to-own property, be sure to:
- Pick the right terms. |} Input a lease-option arrangement as opposed to a lease-purchase agreement.
- Get Assist. Hire a qualified real estate attorney to explain the contract and also help you know your rights and obligations. You might choose to negotiate a few things prior to signing or avoid the bargain if it is not positive enough for you.
- Be sure to understand:
- the obligations (what’s because )
- the alternative fee and rent payments — and just how much each applies towards the cost
- how the purchase price depends upon
- how to exercise your choice to buy (as an instance, the vendor may require you to give advance notice in writing of your intention to purchase )
- whether pets are permitted
- who’s responsible for maintenance, homeowner association dues, property taxes and the like.
- Research the home. Order an independent evaluation, acquire a property inspection, make sure the property taxes are up to date and ensure there are no liens on your home.
- Research that the vendor. Check the vendor’s credit report to search for signs of financial problem and get a title report to see how long the seller has owned it the longer they have owned it and the greater equity, the better.
- Double check. Under which conditions could you reduce your option to buy the property? Under some contracts, then you drop this right if you’re late on just 1 rent payment or if you fail to inform the seller in writing of your intent to purchase.
The Bottom Line
A rent-to-own arrangement enables prospective property buyers to move to a home straight away, with several years to work on enhancing their credit ratings or saving to get a down payment prior to trying to obtain a mortgage.
Naturally, certain provisions and conditions have to be met, in accordance with the rent-to-own agreement.
Even if a real estate agent assists with the process, it is vital to consult an experienced real estate lawyer who can clarify the contract as well as your rights before you sign up.
As with anything, always check with the proper professionals before entering into any kind of agreement.
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