How Rent To Own Works For a Buyer (Part 2)

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 toddrodocker@kw.com or by visiting his web sites  www.utahrealestatestore.com  www.SearchUtahFineHomes.com

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About toddrodocker

I have been doing real estate for 15 years has a Real Estate Investor, Real Estate Agent and Mortgage Originator. Todd Rodocker Realty Group is partner with KW Utah Realtors and Altius Mortgage. NMLS 317650
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