In Part One we talked about if rent-to-own is right for you and reasons why you may consider a rent-to-own instead of using a mortgage to purchase the real estate.
In part two we will discuss how the rent-to-own purchase should be structured. Also what to include with the purchase agreement, rental terms and general basic items.
Talk With a Lender
First and foremost, you really should talk with a lender before diving into a lease option with purchase (rent-to-own). Again, the reason being you don’t want to put money down (option money), sign a short term contract only to find out 12 months later you may still have a year or more left before you will be able to qualifying for the loan. Some sellers will be understanding and give you an extension on purchasing their property, but some won’t. Sellers are looking to move forward with their life’s and they too have goals that they are trying to accomplish. A mortgage person can help you determine two very important factors. 1-How much montly payment you can afford and 2-How much house you can buy. Knowing this before you sign a contract to rent-to-own is a huge first steps.
OK, so now you have talked with a mortgage person, you know where you are at qualifying for that loan, you know what you need to do to get there, what you can afford a month and what price range of a home you can look for. You may have discovered that you need credit clean or you need to pay off some dept or just pay down some credit card balances, what ever the case may be, after consulting with a mortgage person, you should have the cofidince knowing what you will need to do, to obtain financing.
5 Basic Terms to Use In The Contract
Now after finding the home, it is time to make the offer on the property that you have fell in love with. The offer will consist of 5 basic terms….1-the agreed apoun purchase price, 2-The monthly rent, 3-How much if any of the monthly rent will go towards principal of the purchase price, 4-Or how much of the montly rent will go towards your closing cost at the end of your lease agreement and 5-Amount of the down payment (option money). The option money is like anything else, negotiable. On average, 3% to 5% is what asked for the down payment (option money).
Use A Escrow Company
Also in the purchase contract/lease aggreement you will want your payment to go through a Escrow company. The job of the escrow company is to be a neutral third party. If the sellers have a mortgage, the payment will be made by the escrow company with the renter/buyers rent money. If there are funds left over after paying the sellers mortgage then that money will be sent to the sellers. This is an important step and should not be skipped. This will make sure the mortgage is being paid and kept current.
Now Your In The Home
During the time you are residing and renting the property you will want to have rental insurance. Rental insurance is inexpensive and will cover your personal property. It would be in the sellers best interest to purchase a home warranty. A home warranty will actually benifit both parties against unexpected problems, like if the hot water heater would stop working.
Pay your rent on time and in full. Lenders will look at this when you apply for the mortgage to purchase the property. Obviously don’t do anything that may jeopardise obtaining the loan, like inquire new dept or have a late payment. You must stick to your plan and be disciplined.
If a plan like this is followed, it should be a smooth transaction. Please fill free to contact me for any questions about rent-to-own, or if you have doubts if this is right choice for you.
Todd Rodocker specializes with first time home buyers, seasoned buyers and investors. He can be contacted at firstname.lastname@example.org or by visiting his web sites www.utahrealestatestore.com www.SearchUtahFineHomes.com