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Renting-to-own a home is the new alternative path to homeownership. In today's housing market, the challenges of buying a home through traditional methods have increased drastically. The rent-to-own process allows potential buyers with poor credit scores, or who simply lack the large down-payments required to own a home, the opportunity to live in their home while working on improving their credit and saving funds. What could be better?
If your property has a pool, your pool key will be located in the kitchen drawer unless your property was purchased from a foreclosure or short sale. If a pool key is missing, you will need to contact the HOA for one. Your HOA packet should be sent to you via email. If you didn’t get one from your agent, please contact the office. If the HOA charges you for a pool key, you may deduct that from your first month’s rent.
If the home value appreciates from your agreed purchase price, you have immediate equity when you purchase the home. For example, if your purchase price is $180,000 today and the home is appraised at $200,000 in two years when you exercise your option to buy, you have $20,000 of built-up equity. And that’s on top of your upfront option fee and the rent credit you’ve accumulated that go toward your purchase price.
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Rent-to-own can be worth looking into for would-be buyers who simply can’t wrangle a mortgage the traditional way. Typically, that’s because you either lack enough cash for a down payment or your credit score isn’t strong enough to be approved for a mortgage (or both). With a rent-to-own agreement, you get more time to boost your credit and save up, all while getting a head start on building some equity.
When it comes to deposits, rent-to-own and traditional mortgage loans operate very differently. Generally a traditional mortgage transaction would involve a buyer giving the seller an Earnest Money Deposit that the buyer gets credited back to them upon closing on the purchase. In rent-to-own transactions, the deposit is generally more, and is given upfront or occasionally on the one-year anniversary of the rent-to-own contract. Rent-to-own deposits are often credited back to the buyer when they purchase the home by using a traditional mortgage loan, or more rarely a cash purchase.
What the buyers and sellers often don’t realize is that the buyer can only receive a credit for any amount of rent paid that is more than "fair market rent" as determined by the appraiser. For instance, if the appraiser notes that the "fair market rent" for the property is $1000 per month, and rent-to-own contract states the buyers rent is $1000 per month, the buyer cannot receive any credit for rent paid. As you can imagine, this can be a costly technicality that brings buyers no closer to their goal of purchasing the home.
Buyers see benefits—but not without some big potential roadblocks. In many cases, they are counting on being able to rebuild their damaged credit rating while living in the rent-to-own home and paying above-market rent. To benefit, they must be able to get their financial house in order and qualify for a home loan before their lease option expires. Should the market drop significantly, the renter might end up owing a lot more on a house than it's worth. And it's harder to move out should your lifestyle change.
When you rent-to-own, you can target both buyers and renters as potential candidates to RTO the property. A buyer could purchase the property on an RTO basis, and either live in it or turn it into an investment property once the contract ends. A renter may want to purchase a property but doesn't have the means to do so right now. Any RTO property could be a big draw for them because it gives them time to save before purchasing the property. The seller has an increased chance of RTO their property.
Owning a home is truly the American Dream. Buying a home can be a difficult process, especially for those with poor credit, no credit and/or a limited amount to invest. A Lease to Own, also known as Rent to Own, Option may be just for you! Based on your individual criteria, we can be very creative with financing and fit it to your needs. We are not loan brokers, bankers, real estate agents or selling homes for someone else, we are the owners or we have a legal equitable interest in the property.
There used to be a distinction between a lease-option arrangement and a lease-purchase deal. Lease-option meant that at the end of the term, renters didn't have to buy the house. They were contractually obligated to buy it in a lease-purchase deal --- whether or not they could afford it. People now use the terms interchangeably, so be clear on exactly which contract you're entering into [source: McLinden].
You also want to be sure your landlord is on solid financial ground before closing a rent-to-own deal. If he or she falls behind on the mortgage or loses the house for some other reason while you’re renting, you probably also lose the option to buy and all of the money you’ve put toward the purchase price. To help protect yourself, do a title search before signing anything so that you can make sure the property is actually your landlord’s to sell.
When you decide that rent-to-own is the right choice for you, you'll have to start looking for places that list RTO homes for sale. It might seem like a difficult thing to find at first, but several websites list them. One thing to note about these types of sites is some of them charge a fee to view information. Be sure to use a credit card rather than a debit card so you can more easliy dispute charges if you keep getting charged after you stopped using the service and contacted the company to cancel any ongoing subscriptions. It is hard to point out gotchas to specific websites while publishing an article like this because businesses can be bought & sold, and new owners may be more aggressive with monetizing customers than the old owner was.
Details of the sale: Some landlords assume that they can coordinate the details of the eventual sale at a later date, but this is a big mistake. It’s in the interest of all parties to be abundantly clear about the terms and conditions of the sale in advance, including an agreed-upon purchase price. Yes, the property may appreciate in value over time. Conversely, it may depreciate. In fairness to both parties, the price should be set in advance nonetheless.
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