RENT TO OWN – Good Deal or Bad Deal?

It’s not always clear what the term RENT TO OWN or LEASE/PURCHASE means, but most times it is very complicated and very speculative process. It can be very risky for both the buyer and the seller if the terms are not understood completely.

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Typically the buyer/tenant puts up a sizable deposit and rents the home for a set time, such as a year or two. When that time is up they have the option to purchase the home. Sometimes a portion of the rent paid can be credited to the purchase price of the home. A future sale price is set for the home and depending on the market, it may or may not be worth the value when the time comes for the buyer to purchase the house.

Buyers should be aware of terms that are too good to be true. Most rent to own contracts are geared to benefit the seller since they are the one taking the biggest risk. The large up front non-refundable deposit may go toward the purchase price but what if the buyer ends up unable to purchase the house? Buyers can lose the up-front money they have invested and still not have a home and often the “rent” payments are more than the typical market rent for the area.

For the seller, the risk for is that the tenant/buyer will be living in the dwelling and may or may not be taking care of it. The seller will still be paying the taxes, which will now be higher because the property is does not qualify for homesteaded exemption in Mobile County. Another risk for the seller is that at the end or the RTO term the home may need repair or the tenant/buyer will have to be evicted. If a buyer has credit problems when they enter into the agreement they may still not be able to get a loan at the end of the agreed term.

If you are dedicated to the idea of buying a home it is best to get pre-approved for a traditional loan.  If needed, fix your credit problems or start to establish credit. If your credit problems are unfixable, then RTO is not a good option because in the end you will need to get a loan to buy the home. If you have enough money for the sizable down payment needed to rent to own, use those funds to pay off your bills and fix your credit.

If you have a large amount of funds for a down payment but your credit is shaky, look for an owner financed home. With owner financing, the title to the property is transferred to the buyer with a Warranty deed and the seller holds the mortgage lien just like a bank. Payments are made to the seller and when the property is paid in full, the seller will cancel the lien.

Interest rates have never ever been this low, still around 4%.There are loans, like USDA that don’t require a down payment and loan closing costs are financeable. Sellers are often willing to help pay part of the closing and prepaid fees, so you could feasibly get into a home with little or no money at all and most times the loan payments are less than market rent.

Buying a home is one of the largest purchases a consumer will make and it is well worth the effort to become knowledgeable about your home purchase. REALTORS© are real estate professionals that can guide both sellers and buyers through the process of real estate transactions. Take advantage of our years of experience and let us help make your real estate experience less stressful and more fulfilling.

Visit www.mygrandbayhome to preview homes or contact Aleta Boudreaux at Azalea Real Estate Agency at 251-656-4576 for more information on selling or purchasing a home and to tour homes in the area.                                                                     ©Aleta Boudreaux, 2016

 

 

 

BUYING A FORECLOSED HOME

by Aleta Boudreaux, Broker. Azalea Real Estate

Buying a foreclosure is not as easy as buying a typical home that is on the market. You may get a fantastic price but sometimes it takes a lot of time to find just the right property. Most foreclosures are real estate owned (REO) properties. They are owned by the lender, usually a bank, HUD or Fannie Mae as a result of the previous owners default on the loan.

Two common ways to purchase a foreclosure is through a real estate agent or through a public auction. If you have never purchased a home before it is a good idea to have a real estate guide you through the process. You should work with an agent that is experienced in foreclosures. They can assist you in negotiating the purchase price and terms of a foreclosed home but it may take a little longer than a typical real estate transaction.

There are two types of auctions that may occur, a public foreclosure auction or public auction through an auction company. A public foreclosure auction can occur when ownership of the property officially goes back to the bank. If it is not sold, the property is listed with a real estate agent. A sign will go up on the and you can purchase the property from the bank through your real estate agent.

If the property still does not sell then it may go to either an in-person auction or an online auction. These auctions happen fast and you may not have time to inspect the property and instead have to rely on photos and printed descriptions.  Do your research and set a budget before you attend an auction. If you win the bid, the house is yours.

There are several things you should know. Foreclosures are sold “AS IS” and it’s going to be up to you, the buyer to pay for repairs. This can be tricky if the house has a lot of work to be done.

You will need a preapproval letter from a lender or bank proof that you have the cash to purchase the home before a seller will accept an offer. Getting prequalified will tell you how much home you can comfortably afford.

Banks or lenders want to sell these properties quickly. If you find a home listed at $50,000 that is in a $100,000 neighborhood you need to ask yourself what could be wrong with the home that is it priced so low?

Because the property is a foreclosed home, the seller will have no first-hand knowledge of the condition of the property. Therefore it is up to the buyer to determine the property’s condition. This can be done through a professional home inspection. They will make a list of everything that needs to be fixed, then you can research the costs, and factor in those costs to any offer you make to ensure you could cover the costs on top of your new mortgage payment.

You will also have other pre purchase expenses which may include an appraisal and earnest money or ‘good faith’ deposit to demonstrate your sincere interest in purchasing the home.

As with a typical real estate transaction, out-of-pocket expenses can occur before and after an offer to purchase a property has been submitted. These out-of-pocket expenses may include lender required documentation such as an appraisal or home inspection and bank-required minimum earnest money.

A good mortgage lender will tell you about all the loan products available for this type of transaction, including traditional loan products or an FHA 203(k) Renovation Loan (a mortgage that provides the purchase price plus funds for renovation by financing the “as improved” value of the home).

Most foreclosed homes are listed for sale with real estate agents the same way as traditional homes. However, in addition to searching through REALTOR.COM or ZILLOW.COM or Mygrandbayhome.com you can do an online searches for “REO properties” or “foreclosures”.

Always request a title for any real estate transaction. A title company will check the property for liens (outstanding debts someone is attempting to collect against the property) as well as verify that the deed to the home is correct. In Alabama there is still a previous owner’s right of redemption, meaning that with payment to the lender, they can reclaim their home within a certain time.

You are the only one that can decide if buying a foreclosed home is a good match for you. Do your research and work with qualified professionals to help you make the right decision.

At Azalea Real Estate in Grand Bay we can help you from search to closing. Take advantage of our years of sales and marketing experience.

Visit www.mygrandbayhome to preview homes or contact REALTOR© Aleta Boudreaux at 251-656-4576 for more information on purchasing or selling a home in South Mobile County.

©Aleta Boudreaux, 2016