If you feel ready to buy a house, but if you are still lacking the capital, credit, or confidence you are not fully prepared. Many people feel emotionally ready to buy a home, but would still be more comfortable with a middle-ground option. Today first-time homebuyers have options besides taking out a loan and paying off a mortgage for their home. While homeownership is an exciting experience, it is important to make smart decisions when it comes to property rental, or purchasing your new home. Many people work closely with a real estate agent in order to fully prepare for the experience of homebuying. If rent to own houses is right for you, you will be able to determine that together with your real estate agent. Asking the right questions, and having a good idea of what you want out of a home is the best way to get the most out of your home buying experience. However, you may have questions right now about how rent to buy homes work, including, “What is rent to own mean?”
What Are Rent to Own Houses?
Every property is different, and by working with a professional real estate agent it will be easier to find the right rent to buy a house for you. Regardless of the type of home you purchase, here are the three main components of rent to own houses:
- The Agreement. There are two types of agreements that you will sign when you make a commitment to a rent-to-own property: a lease agreement with an option to purchase and a lease agreement with a purchase agreement. With a lease that includes an option to purchase, the contract allows you to buy the property at the end of the leasing term. With a lease agreement with the purchase agreement, you are legally obligated to buy the home when the lease is over. This type of contract may require additional precautions including a mortgage pre-approval, and a home inspection.
- The Purchase Price. A property’s purchase price is set upfront however, you may need to negotiate with the landlord. Remember, that rent to own properties is different than a lease option which allows you to purchase a property that you were renting before it goes on the market. Rent to own houses usually require a deposit, or “option money,” so, remember to consider up-front costs as part of the purchase price.
- The Payments. With a rent to own property sale, the amount of the rent is applied towards the purchase price of the property. Your state may include a rental contract that has a specific percentage that is applied to the rental payment towards the purchase price of your rent to own home. For example, a rent to own home with a $1,400/month rental payment may include a 30% payment towards the purchase price of the home. So, over the course of four years, an equation to establish monthly payments towards the purchase of a rent to own home would look like this: $1,400 x 0.30 = $420; $420 x 48 months = $20,160.
Are Rent to Own Houses Right For Me?
Only you will be able to determine which is the best leasing option for you. In your situation, renting a property that you absolutely love may be the right fit for your needs. Over time, your needs can change with a new job, family growth, or new desires, and there could be a better option. This is the main reason why it is so important to talk to a professional real estate agent before you decide if renting, purchasing or a rent-to-own option is right for you.
It is better to take your time choosing the right property type, and leasing agreement so that you are able to not only meet your short-term goals but also your long -term needs as well. In many cases it is better for someone to purchase a home, or rent it however, it is a case by case basis for every person. What you decide to do as a tenant is based on your needs, the neighborhood, and property value, but there are more things to consider, too.
Here are a few questions to ask yourself to determine if the option is right for you:
- Is this my dream home?
- Do I qualify?
- Is my credit score high enough?
- Do I have enough for the down payment?
- Is non-traditional homeownership my style?
- How much time will it take me to pay off the property?
- Am I ready to make a commitment to this home?
Understanding the Five Components of Rent to Own Houses
Your options as a homebuyer offer you room to decide which is the right arrangement for you. Understanding these five parts of the rent to own home agreement can help:
- Time Frame. This is the amount of time it takes for the homebuyer and landlord t transition from the rental period to the owning period for the property.
- Purchase Price. Every property has a unique purchase price that is either pre-determined or agreed upon at the end of the leasing term. The final home’s purchase price of a property is an important factor for both the landlord and the homebuyer.
- Option Fee. Paid in addition to the rent, a deposit can be refunded, but may also be non-refundable. Typically, an option fee is credited upon the sale of the property to the buyer in order to secure the right to the property. Unlike a down payment on a mortgage, an option fee is usually between 2.5 to 50 percent of the total rent.
- Equity. The rent of a property is usually set by the landlord above the market value. In setting the rent slightly higher than the market value, a portion of the rent includes equity in the purchase property. Usually, the equity of the property is between 25 to 50 percent of the total rent.
- Closing. Rent to buy homes include a contract between the buyer, and seller to purchase the property by the closing date. The future closing date can be any time after the initial contract is signed, and typically is between one and three years.
Rent to own homes is an attractive option to many people with low credit, or the desire to make the most of their rental payments as a tenant. If you are currently renting an apartment, townhome, or condominium, a rent to own home may be right for you. Most people consider buying a home out of reach however, rent to own houses do not require a 20 percent down payment before you buy. Consider turning your regular rental payments into an investment by choosing a rent to buy homes in your area. The marketplace can be a confusing place for a first-time homebuyer so, call the offices of Jeff Barchi to talk to a real estate agent in Gilbert.