Judy Moore - Barrett Sotheby's International Realty



Posted by Judy Moore on 5/13/2018

If you donít have a lot of cash on hand to secure a home with a sizable downpayment, you might feel stuck. Itís quite a feat to be able to save up the 20 percent cost of a home that is generally required to purchase a home. Your options may seem limited when you want to own a home. There is one option that could be a good idea to consider when youíre in this situation. Thatís the idea of finding a rent-to-own property. 


How Does A Rent-To-Own Property Work?


First, know that these properties are hard to find. Thatís why you may not have thought of it as a first option. When you do find a property like this that suits your needs, you should know all of the ins and outs before you commit to the home. The agreement works just as it sounds, but there are always a few bits of extra text that can make the difference in any agreement in a rent-to-own property. 



Lease With A Purchase Option


With this type of agreement, youíll need to pay what is called an option fee in order to give you the right to purchase the property at a later date. The seller is then required to sell the property to you as a tenant and apply the option fee to the price of purchase. If for some reason you have paid the option fee and decide to walk away from the property after a time, the money that you have paid as an option is simply lost. The option fee is usually a percentage of the purchase price ranging anywhere from 2-7 percent of the homeís price.  


Lease And Purchase Agreement Rolled Into One


In this type of rent-to-own agreement, both the tenant and the seller agree on fixed purchase price for the home, or agree that a purchase price will be determined at a later date through an appraisal. Everything is set up from the beginning including the closing date for the home.


This type of deal in a rent-to-own situation is often considered the better choice. Know that a fixed price option may put you in a better financial position than an appraisal option. Youíll have instant equity in the property when you buy it. This is especially helpful in high competition markets. In any other types of market, you may be better off with an appraisal. This ensures that you donít overpay for the house.


How Your Rent Payments Apply


Rent-to-own gives you an advantage in that you get the added benefit of rent credits. This is where a percentage of your monthly rent payment is applied to the purchase price of the home. The amount of percentage thatís applied will be agreed upon with your landlord ahead of time.


While a rent-to-own option to purchase a property can be a bit more complicated than other ways of purchasing a home, it can be a great way for people different financial situations to become home owners. Make sure you go over everything carefully before you sign anything so that you fully understand the agreement youíre entering into.       

     







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