Rent To Own Homes Baton Rouge – As a renter, you’ve probably heard of “rent-to-own” or perhaps “rent-to-own programs.” And if you’re on the road to owning your first home, you may be wondering if a rent-to-own home is the right path to home ownership for you. Fortunately, rent-to-own properties are one way to go when buying a home for the first time, but it’s not for everyone. We take you through some important details when deciding whether a rent-to-own is the best option for your home buying goals.
Simply put, a rent-to-own property is a residential property that you agree to live in as a rental for a number of years with an option to purchase the home at the end of the lease period. With most rent-to-own agreements, the tenant makes an additional monthly payment that goes toward the down payment. The rent also includes the purchase price of the house. The tenant may also be responsible for safe maintenance or upkeep of the property.
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With a rent-to-own home, you rent your home for a set period of time and then buy the home at the end of the lease period, usually with a mortgage. Although it may seem like an easy way to own a home, there is more to it than going from tenant to owner. There are fees, negotiable purchase agreements and other things to keep in mind (and ask about) when considering a rent-to-own option. Here is a list of things you may experience when exploring rental properties:
If you are interested in buying a home through a rent-to-own agreement, it is good to understand the process. At the beginning of the rental period, you must pay the option fee. Option fees are typically 1-5 percent of the purchase price of the home, although there is no standard rate.
For example, if your property’s purchase price is $100,000, you’ll pay $1,000 to $5,000—sometimes nonrefundable—before you ever move in. And you have to pay this along with your other upfront fees, like your security deposit. Remember that fees are often negotiable, so don’t be afraid to offer different options to the landlord or seller.
Another upfront cost you must pay for is a home appraisal and home inspection. You can use these data points to assess whether the property is in good condition and worth your investment. You can also do a title search by going through a title company to make sure there are no liens on the property and you are dealing with the actual owner of the deed and the property taxes are up to date.
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How your contract is structured can have a big impact on your options and responsibilities as a tenant and future landlord. With a rental option, you usually reserve the right to withdraw from the contract at the end of the rental period. Although you may lose the money you put in securing the opportunity to buy the property, a lease can be a good option for tenants who want to protect their interests and move out.
A lease-purchase agreement usually states that you must buy the property at the end of the contract, even if you still want the property or cannot secure financing (ie a mortgage). If you fail to buy the property, you may Be fined or subject to other penalties.
Regardless of the type of rent-to-own agreement you are considering, it is always a good idea to have the agreement reviewed by a real estate attorney.
Your rent to own agreement should include the purchase price of the property. Before you sign the contract, you already know what you want to spend on the property at the end of the lease period. Often, the purchase price is higher than the home’s current market value. This can be a good thing in real estate markets where prices rise reliably every year, but it can also be dangerous.
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For example, if the purchase price of the home at the end of the lease term is more than the market value, you may not be able to get a mortgage for this amount. Lenders use property as collateral for loans. Be aware that lenders may not offer a mortgage if the market value of the home is less than the mortgage amount. You must pay the difference between the market value and the purchase price to get your mortgage.
It is also a good idea to look at what the housing market is doing in your area and note how the price of homes has generally increased on average from year to year to confirm that the purchase price listed in the contract is accurate. You can also check real estate companies in your area to see how homes typically sell: above, below or at list price. This is another tool to help you determine if a home’s value is accurate.
Typically, your monthly rent payments and home purchase payments, if any, will be detailed in your rent-to-own agreement. Many contracts allow you to put an option fee – 1-5 percent paid up front – against the purchase of the home. Many leases also require an additional monthly fee that is set aside to pay for your home purchase.
For example, if your monthly rent payment is $1,600, where $1,200 goes to the monthly rent and $400 is set aside or “credited” to the purchase price of the home. If your lease is for two years, you will end up with $10,000 ready to go towards the purchase at the end of the lease. Your contract should state where your payments for purchases are held. Ideally, the funds should be in an escrow account or something similar to ensure they are available to you at the time of purchase. Again, it’s always a good idea to have your contract reviewed by a real estate attorney.
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Many leases do not have extensive maintenance requirements, but some may. Tenants may need to cover the cost of replacing a roof, for example, or repairing other damages that can be large expenses. Often when maintenance is required, the tenant takes care of the lawn or other small household tasks. Just be careful of any deal that requires you to take on a huge financial burden.
At the end of the lease term, you can buy your property according to the terms of your agreement. If your contract is a rent-to-own rental option, you can choose to walk away from the contract for any reason. You will most likely lose the option fee and all or some of your payments to buy the home. But this is often the price of walking away without additional responsibilities.
If your deal is a hire purchase agreement, you will have fewer options. The options available to you depend on the contract, which is why it is so important to have it reviewed by your attorney.
Ideally, you buy your property like any other property. You get the loan and close on the property. And then you own the house.
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Although a little unconventional, the rent-to-own process is relatively straightforward. If you’re a seasoned renter, the process will look familiar. But there will be new things to learn and unique decisions to make. Here’s an overview of things you might consider as part of the rent-to-own process:
Rent-to-own properties can be a good idea for the right buyer. For those with credit score issues, a rent-to-own home can be a great way to pave the way to buying your first home. Some lenders work with rent-to-own buyers to help them repair their credit and get into the best financial position to buy a home.
Rent-to-own purchases can also give tenants the opportunity to lock in the sale price of a home by giving them time to build good credit and a down payment fund. When the housing market moves quickly, a renter-buyer can make plans based on future expenses just like a homeowner. But remember that interest rates are not set in stone.
Another advantage is that the tenant-buyer does not have to pay to move into their home. They already live there. They already know their property and neighbors. In some cases, the tenant may be able to make some home improvements that help build equity.
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A final benefit is that as long as the agreement is set up correctly, the tenant-buyer can walk away from the agreement if there are problems with the property.
Rental properties have their drawbacks, and they are not for everyone. Some past programs have had predatory practices built into their contracts, and some are hiring scams. This is why it is so important to have the agreements reviewed by an attorney.
Rental properties can be a landlord’s dream or worst nightmare. On the plus side, the tenant/buyer is more likely to invest
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