If you are like most home buyers, you are going to require a mortgage to fund the purchase of a new property. Rent To Own Homes South Carolina
To qualify, you need to have a fantastic credit score and cash for a down payment.
Without these, the standard path to home ownership may not be an option.
There is an alternative, however: a rent-to-own agreement, where you lease a home for a particular amount of time, with the choice to buy it before the lease expires.
Rent-to-own agreements include two components: a standard lease agreement plus an choice to buy.
Here is a rundown of what to look for and how the rent-to-own process functions.
It is more complicated than renting and you will have to take extra precautions to protect your interests.
Doing so will help you discover if the price is a good choice if you’re trying to get a home.
You Need to Pay Option Money
In an rent-to-own agreement, you (as the buyer) pay the seller a one-time, generally nonrefundable, upfront fee known as the option fee, option money or option consideration.
This commission is what gives you the option to purchase the house by some date in the future.
The option fee is often negotiable, as there’s no typical rate.
Nonetheless, the fee typically ranges between 2.5% and 7% of the cost.
In certain contracts or some of this option money could be put on the eventual cost at closing.
Read the Contract Carefully: Lease Option vs. Lease Purchase
It is important to be aware that there are different types of rent-to-own arrangements, with some becoming more user friendly and flexible than others.
Lease-option contracts provide you with the best — although not the duty — to get the house when the lease expires.
In the event you decide not to buy the property at the end of the rental, the option simply dies, and you can walk away without any obligation to continue paying rent or to purchase.
With these you may be legally obligated to get the home at the conclusion of the rental — if you can afford to or not.
To have the option to purchase with no obligation, it has to be a lease-option agency.
Since legalese can be difficult to decode, it’s almost always a fantastic idea to review the contract with a qualified real estate lawyer before signing anything, which means you know your rights and exactly what you’re getting into.
Specify the Purchase Price
Rent-to-own agreements should specify if and how the home’s cost is determined.
Sometimes you and the vendor may agree on a purchase price when the contract has been signed — often at a greater price than the current market value.
In different situations the cost is determined when the lease expires, depending on the home’s then-current market value.
Many buyers choose to”lock in” the buy price, especially in markets where housing prices are trending upward.
Know What’s Rent Buys
You’ll pay rent through the lease term.
The question is whether a portion of each payment is placed on the ultimate purchase price.
Usually, the lease is a bit higher compared to the rate for the region to compensate for the lease credit you receive.
But make sure to understand what you are getting for paying that premium.
Maintenance: It May Not Be Like Leasing
Based on the conditions of the contract, you could be liable for keeping up the property and paying for repairs.
As sellers are finally responsible for any homeowner association fees, insurance and taxes (it is still their property , after all), they generally opt to cover these costs.
Either way you will need a renter’s insurance policy to cover losses to personal property and supply liability coverage if someone is injured while in the house or if you accidentally injure someone.
Be sure maintenance and repair needs are clearly stated in the arrangement (ask your lawyer to explain your responsibilities).
Keeping the home — e.g., mowing the yard, raking the leaves and cleaning out the gutters — is quite different from replacing a damaged roofing or bringing the electric up to code.
Whether you’re going to be responsible for everything or simply mowing the lawn, have the house inspected, arrange an appraisal and be certain that the house taxes are up to date before signing anything.
Buying the Home
What happens when the contract ends depends upon which type of agreement you have signed.
When you’ve got a lease-option contract and need to buy the property, you will likely need to acquire a mortgage (or other financing) so as to cover the seller in total.
Conversely, should you decide not to purchase the home — or cannot secure financing by the close of the lease duration — the choice expires and you move out of the house, just as though you were leasing any other property.
You’ll likely forfeit any money paid up to that point, including the alternative money and any lease credit earned, but you will not be under no obligation to continue renting or to buy the home.
When you’ve got a lease-purchase contract, then you may be legally bound to obtain the property when the lease expires.
This can be problematic for a number of reasons, particularly if you are not able to procure a mortgage.
Lease-option contracts are nearly always preferable to lease-purchase contracts since they offer more flexibility and you do not risk getting sued if you are unwilling or unable 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 arrangement may be an outstanding alternative if you’re an aspiring homeowner however are not quite ready, financially speaking.
These arrangements give you the opportunity to receive your money in order, boost your credit score and help you save money for a down payment while”locking in” the home you’d love to get.
If the option money and/or a proportion of the lease goes toward the purchase price — that they frequently do — you also get to build some equity.
While rent-to-own arrangements have traditionally been geared toward people who can’t qualify for repaying loans, there’s a second group of applicants that have been mostly overlooked by the staffing industry: people who can’t get mortgages at pricey, nonconforming loan markets.
“In high-cost urban property markets, in which jumbo [nonconforming] loans are the norm, there’s a sizable requirement for a better solution for fiscally viable, credit-worthy folks who can’t get or don’t want a mortgage nevertheless,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco–based startup that is redefining the rent-to-own market.
“As housing prices rise and more and more towns are priced out of conforming loan limits and pushed to jumbo loans, the issue shifts from consumers to the home finance industry,” says Scholtz.
With strict automated underwriting guidelines and 20% to 40 percent down-payment needs, even fiscally competent individuals may have trouble obtaining financing in these types of markets.
“Anything unusual — in earnings, for instance — frees good income earners in a’outlier’ status because underwriters can’t fit them into a box,” says Scholtz.
Including individuals who have nontraditional incomes, which are either self explanatory or contract employees, or possess unestablished U.S. charge (e.g., overseas nationals) — and also people who only lack the tremendous 20% to 40 percent down payment banks need for nonconforming loans.
High-cost markets aren’t the obvious location you’ll discover rent-to-own possessions, and that’s exactly what makes Verbhouse unusual.
But all potential rent-to-own house buyers would gain from attempting to write its consumer-centric attributes into Monetary contracts:
The option fee and a portion of each rent payment purchase down the buy price dollar-for-dollar, the rent and price are locked in for as much as five years, and participants can build equity and capture market appreciation, even if they opt not to purchase.
According to Scholtz, participants could”cash out” in the reasonable market value: Verbhouse sells the house and the participant retains the market appreciation plus any equity they’ve accumulated through rent”buy-down” payments.
Do Your Homework
Although you’ll lease before you buy, it’s a great idea to work out the exact due diligence as if you were buying the house outright.
If you are considering a rent-to-own property, Be Certain to:
- Pick the Proper terms. |} Enter a lease-option agreement instead of a lease-purchase arrangement.
- Hire an experienced real estate attorney to explain the contract and also help you understand your rights and obligations. You might choose to negotiate a few things prior to signing or avoid the bargain if it is not favorable enough to you.
- Make sure you understand:
- the obligations (what is because )
- the option fee and rent payments — and how much of each applies towards the purchase price
- how the purchase price is determined
- how to exercise your option to purchase (by way of instance, the vendor could ask you to provide advance notice in writing of your intent to buy)
- whether pets are permitted
- who’s responsible for maintenance, homeowner association dues, property taxes and such.
- Order a different appraisal, acquire a home inspection, be certain that the property taxes are current and ensure there are no liens on the home.
- Check the seller’s credit report to look for indicators of financial problem and get a title report to understand how long the seller has owned it — the longer they have owned it and the greater equity, the greater. Under which conditions could you reduce your option to purchase the property? Under some contracts, then you eliminate this right if you are late on just one rent payment or if you fail to notify the seller in writing of your intention to purchase.
The Bottom Line
A rent-to-own arrangement allows would-be property buyers to move to a home straight away, with several years to work on improving their credit ratings or saving to get a down payment prior to trying to find a mortgage.
Obviously, certain provisions and conditions have to be met, in accordance with the rent-to-own arrangement.
Even if a property broker assists with the process, it’s vital to seek advice from a qualified real estate lawyer who can clarify the contract and your rights before you sign anything.
As with anything, always consult 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 South Carolina, hopefully you found what you were looking for.