Are you looking to take advantage of pandemic pricing?
Places that used to have infamously high rent, are now seeing record low prices. For instance, rents are dropping as much as 10 to 20% across New York City.
No matter where you live if you’re thinking about relocating now could be the perfect time to make your move. However, instead of entering into a traditional lease, why not invest in your future by becoming a homeowner?
Rent-to-own homes offer a great way to test drive a property before committing to the purchase. How does rent-to-own work? Read on to find out!
Pre-Approval Process
How is the preapproval process for rent-to-own homes different from a regular sale? When you’re buying a house traditionally, first you save for a down payment. Next, you have to get pre-approved for a mortgage.
However, when it comes to renting to own houses, the process is a lot more fast-paced. Instead of setting up a mortgage, you’ll be entering into a special type of rental contract. To start creating the contract, the buyer and seller first must agree on a purchase price.
For instance, the price can be based on what the home might be worth in the future. You can also choose to set the purchase price based on the future potential of the home. A future purchase price is something both the buyer and seller have to agree on, and it’ll usually be decided once the lease expires. If you don’t like the risk involved with having a future purchase price, then we suggest looking for a rent-to-own situation where you’re paying based on the home’s current value.
Monthly Rent
Next, when it comes to weighing the rent to own pros and cons, you have to consider the way your rent is spent. The contract for renting to own will include the exact amount of rent that’s due each month. However, unlike a standard rent, you’ll also have to cover the cost of maintenance.
Remember, you’re assuming partial responsibility for the property. As a result, you may be liable for all of the maintenance issues. The maintenance fee is set in the contract, and it’s there to help the owner, and you, handle the high costs involved with owning a home.
Are You Financially Ready?
Make sure your budget can accommodate the expenses that come with owning a home. Think about things like landscaping, air conditioning maintenance, roof repairs, and other big-ticket items. Not to mention, you’re probably going to want to invest in the house’s interior decor. Before you decide to move forward with any type of property purchase, sit down and write out a clear budget.
Prepare to Pay an Option Fee
Moving on, let’s look at the ins and outs of how option money works. What is option money? When you’re renting to own, the option money is a one-time fee that’s built into the contract.
The non-refundable fee is the cost of having the opportunity to purchase the home. You’re buying the option to get the house.
If you’re lucky, you’ll be able to find a seller who’s willing to put the option money towards your equity in the home. This means that the money you pay for the option fee will also be an investment towards the amount you owe on the home.
Unregulated Process
Next, when it comes to renting to own, a lot of the process is unregulated For instance, there isn’t a required amount of option money. In a lot of cases, the option money will be a percentage of the home’s overall purchase price. However, it’s up to the seller how the details of the fee are arranged. Make sure you fully understand every detail about how much the option money fee is, and whether or not it’s going to go towards your home’s equity.
Least Term and Closing
Moving on, the contract will also have a preset lease term. The lease term is an agreed-upon amount of time that you’ll be living in the house. At the end of the lease, you’ll have the choice to either move forward with purchasing the house or leave the property.
It’s important to note that there are two different types of lease agreements for rent-to-own situations. First, there’s the lease option agreement. If you choose the lease option agreement, you’ll get to choose whether or not you want to buy the home when the lease expires.
Whereas, the lease-purchase agreement doesn’t have the same flexibility. If you choose the lease-purchase agreement, you’re legally responsible for purchasing the property when the lease expires. We suggest going forward with the lease option agreement, so you can have some flexibility.
What if You Change Your Mind?
Next, let’s look at how a lease option agreement works if you decide not to get the house. Perhaps, you don’t like the area you’re living in. Another reason to jump ship would be if you didn’t qualify for financing.
Whatever the case may be, when the lease expires, the option to purchase the home will expire as well. As long as you have a lease-option agreement, you can walk away. However, if you paid a hefty option fee, you won’t benefit from that investment anymore.
Wrapping up the Closing Process
Before the lease expires, make sure you fully secured financing for the home. Next, you’ll need the lender to set a closing date to signify your ownership of the property. Part of the rent money you’ve been paying may now be credited towards the cost of the house. The specifics about where your previous rent payments and option fee money goes will depend on the details of your contract. Remember, the rent-to-own process isn’t as regulated as the standard rental process or homeownership process. All of the terms are negotiable, down to the smallest detail. It’s always a good idea to speak to an experienced real estate agent, or property attorney before entering into any type of contract.
Are Rent-to-Own Homes Right for You?
There you have it, an introduction to the ins and out of renting to own. After reading this article, do you think rent-to-own homes are right for you? If yes, figure out if your budget will allow for all of the unexpected home maintenance issues that are sure to pop up. Finally, talk to a real estate agent or property lawyer to find out the best type of rent-to-own contract for you. For more tips like these, check out the rest of this site.
