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.
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