If you are like most home buyers, you are going to require a mortgage to finance the purchase of a new residence. Rent To Own Homes North Houston
To qualify, you must have a great credit score and money for a deposit.
Without all these, the standard path to home ownership might not be an alternative.
There’s an alternative, however: a lease agreement, in which you rent a house for a particular amount of time, with the choice to buy it before the lease expires.
Rent-to-own agreements consist of 2 parts: a standard lease agreement and an option to buy.
Following is a rundown of what to watch for and how the rent-to-own process functions.
It’s more complex than renting and you will need to take additional precautions to secure your interests.
Doing so can help you discover if the deal is a good alternative if you’re trying to buy a house.
You Need to Pay Option Money
In an rent-to-own agreement, you (as the buyer) pay the vendor a one-time, generally non refundable, upfront fee known as the option fee, option money or option consideration.
This cost is what gives you the choice to obtain the house by some date in the future.
The option fee can be negotiable, since there’s no typical pace.
Still, the fee typically ranges between 2.5% and 7 percent of the cost.
In some contracts all or a number of this option money can be put on the eventual purchase price at closing.
Read the Contract Carefully: Lease Option vs. Lease Purchase
It is important to remember that there are different types of rent-to-own contracts, with a few being more consumer friendly and flexible than many others.
Lease-option contracts supply you with the right — but not the duty — to buy the house when the lease expires.
Should you decide not to buy the property at the close of the rental, the option only dies, and you may walk away with no obligation to continue paying rent or to purchase.
To possess the option to buy with no duty, it has to be a lease-option contract.
Since legalese may be challenging to decode, it is always a good idea to review the contract with a qualified real estate lawyer prior to signing anything, which means you understand your rights and precisely what you are getting into.
Specify the Purchase Price
Rent-to-own agreements should specify if and how the property’s purchase price is set.
Sometimes you and the seller may agree on a purchase price once the contract has been signed — often at a higher price than the current market value.
In different situations the cost is determined when the lease expires, based on the home’s then-current market worth.
Many buyers choose to”lock ” the buy price, particularly in markets where home prices are trending upward.
Know What Your Rent Buys
You’ll pay rent throughout the lease duration.
The question is if a portion 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 in the purchase, you are going to earn a $10,800 rent credit ($1,200 x 0.25 = $300; $300 x 36 months = $10,800).
Typically, the rent is a little higher than the going rate for the region to compensate for the rent credit you get.
But make sure to understand what you are getting for paying that premium.
Maintenance: It Could Not Be Like Renting
Based on the details of the contract, then you may be liable for keeping the property and paying for repairs.
Generally, this is the landlord’s responsibility so read the fine print of your contract carefully.
As sellers are finally accountable for any homeowner association fees, taxes and insurance (it is still their residence ( after all), they generally opt to pay these costs.
In any event you’ll need a tenant’s insurance coverage to cover losses to personal property and supply liability coverage if a person is injured while in the house or in the event you accidentally injure someone.
Make certain that maintenance and repair requirements are clearly mentioned in the contract (ask your lawyer to explain your duties ).
Keeping the house — e.g., mowing the lawn, raking the leaves and cleaning out the gutters — is very different in replacing a damaged roofing or bringing the electric up to code.
Whether you’ll be liable for everything or simply mowing the yard, have the house inspected, arrange an appraisal and be sure the house taxes are up to date before signing anything.
Purchasing the Property
What happens when the contract finishes depends partly on which kind of agreement you have signed.
If you have a lease-option contract and wish to get the property, you’re probably going to have to get a mortgage (or alternative financing) in order to cover the vendor in total.
Conversely, if you opt not to get the house — or cannot secure funding by the end of the lease term — the choice expires and you go from the home, just as if you were renting any additional property.
You’ll likely forfeit any money paid up to that point, for example, option money and some other lease credit got, but you will not be under some obligation to keep on leasing or to get your home.
If you’ve got a lease-purchase contract, then you may be legally obligated to obtain the property once the lease expires.
This can be problematic for a lot of reasons, especially if you are not able to procure a mortgage.
Lease-option contracts are nearly always preferable to lease-purchase contracts because they provide more flexibility and also you don’t risk getting sued if you are unwilling or unable to get the house when the lease expires.
Who’s|Who is|Who Is} an Ideal Candidate for Rent-to-Own
A rent-to-own arrangement may be an superb alternative if you’re an aspiring homeowner however aren’t quite prepared, financially speaking.
These agreements provide you with the opportunity to get your finances in order, improve your credit rating and help save money for a down payment while”locking in” the house you’d like to have.
If the alternative money 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 agreements have traditionally been targeted toward individuals who can not qualify for repaying loans, there’s a second set of applicants that have been largely overlooked by the Monetary industry: people who can not get mortgages at expensive, nonconforming loan economies.
“In high-cost urban property markets, where jumbo [nonconforming] loans will be the standard, there’s a huge demand for a better solution for financially viable, credit-worthy men and women who can’t get or do not want a mortgage yet,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco–based start-up that is redefining the rent-to-own sector.
“As home prices rise and an increasing number of cities are priced out of conforming loan limits and pushed to jumbo loans, the issue shifts from consumers to the home finance business,” says Scholtz.
With strict automatic underwriting guidelines and 20 percent to 40 percent down-payment requirements, even fiscally competent people can have trouble obtaining financing in these markets.
“anything unusual — in income, for example — tosses good income earners in a’outlier’ standing because underwriters can’t match them neatly into a box,” says Scholtz.
This includes individuals who have nontraditional incomes, are self-employed or contract employees, or have unestablished U.S. charge (e.g., foreign nationals) — and also those who only lack the massive 20% to 40% down payment banks require for nonconforming loans.
High-cost markets aren’t the obvious spot you’ll locate rent-to-own properties, and that’s what makes Verbhouse unusual.
However, all potential rent-to-own home buyers would gain from trying to write its consumer-centric attributes into rent-to-own contracts:
The option fee and a portion of each lease payment price down the buy price dollar-for-dollar, the rent and price are locked in for as many as five years, and participants could build equity and capture market appreciation, even if they opt not to buy.
According to Scholtz, participants may”cash out” at the reasonable market value: Verbhouse sells the house and the participant keeps the industry appreciation plus any equity they’ve accumulated through rent”buy-down” obligations.
Do Your Homework
Although you’ll rent prior to purchasing, it is a great idea to exercise the same due diligence as if you were purchasing the house outright.
If You Are Thinking about a rent-to-own home, Be Certain to:
- Choose the right terms. |} Input a lease-option arrangement instead of a lease-purchase arrangement.
- Get help. Hire an experienced real estate lawyer to explain the contract and help you understand your rights and obligations. You might choose to negotiate a few things before signing or avoid the bargain if it is not favorable enough for you.
- Be sure to know:
- the obligations (what’s because )
- the alternative fee and rent payments — and just how much each applies towards the purchase price
- the way the buy price depends
- how to exercise the option to buy (by way of example, the vendor might ask you to provide advance notice in writing of your intent to buy)
- whether pets are allowed
- who’s responsible for upkeep, homeowner association dues, property taxes and such.
- Research the home. Order a different appraisal, obtain a property review, ensure 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 obtain a title report to learn how long the seller has owned it — the longer they have owned it and the greater equity, the better.
- Double check. Under which circumstances will you lose your option to purchase the property? Under some contracts, then you lose this right if you’re late on just 1 lease payment or if you fail to notify the seller in writing of your intent to buy.
The Main Point
A rent-to-own arrangement allows would-be home buyers to move into a home straight away, with different years to focus on enhancing their credit scores or saving to get a down payment prior to attempting to have a mortgage.
Obviously, certain conditions and requirements have to be fulfilled, in compliance with the rent-to-own arrangement.
Even if a property broker helps with the procedure, it’s vital to consult a qualified real estate lawyer who can explain the contract and your rights before you sign up.
As with anything, always check with the proper professionals prior to entering into any kind of agreement.
Thanks for taking the time to find out more about Rent To Own Homes North Houston, hopefully you found what you were looking for.