Rent to Own? – Part I

Published by cravat | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs, Uncategorized

Rent alternatives can aid buyers with a not so good credit get into homes they are not fit to purchase otherwise. There are dangers to it but there is also an intelligent way to get around them. 

When you intend to purchase a home but financials are tights and your credit history and bank account are not that steady but that does not stop you from looking. When you consider renting to own or lease with an option to purchase, it is like you paying a higher than market rent and the extra goes toward a down payment. Tenant typically agrees to rent the property for say, two years, with the choices to purchase the home at the price stated in the contract. If a tenant such as you come to a decision not to purchase the home when the option expires, then the owner keeps the excess rent and the fee, usually one percentage of the purchase price. If the owner violates the contract by selling the property prior to the expiration, the tenant gets your invested money. 

Rent to own choices are usually patronized by people who want to purchase a home but need more time to clean up their credit standing histories or much more to save up on your down payment. In this fluctuation market, there is the appeal of closing in a lower price. But the transaction or deal can easily go wrong. I am listing down a few issues you can face and know how to avoid them. 

#1: You shell out too much for a home 

When you consider rent to own you have a less bargaining power versus when you offer to purchase a property for investment outright because nearly all sellers prefers to sell the home, get out from the burden of mortgage and take the equity. They would not wait to see whether the tenant will come to a decision to buy or will meet the criteria for a loan. Sellers are usually not interested in a lease option unless they have difficulty selling their home such as during a slow moving market. Knowing that prospect buyers do not have many alternatives for purchasing a home, owners and sellers typically put a price a tag for their homes above market value. 

The entire idea of lease to own is that the owner or seller is putting a risk with you, when you work for a developer who opts to use lease options, you would understand that owners consider this option highly. A possibility that you could tie up the property and not be able to have your loan approved or you decided to simply walk away. You have to understand that tenants and owners need to be very careful, as well. Often the buyer is so excited that an owner is letting him or her in with little down payment or no cash out that they never bother to get the property appraised. When they finally get to buy the house, they find it is not worth that buying. This can be a concern when prices are declining it is very hard to get a loan.  

On my next article I will discuss further the possibility of losing your hard earned investment or the chances that you may not be able to able to buy your dream home. I am giving you further tips to avoid such and be able to achieve your goal which is to purchase your dream home with the options that you can work on.