With the higher standards and
qualifications for applying for a loan to purchase a home in today’s market,
many would be buyers are looking into the rental market for the time being.
Some of them are even considering “Rent
to Own” option, but is this
really a Good Choice for Renters? Many investors and private home owners from
time to time will offer “Rent
to Own Contracts”, which typically include an up-front fee, plus monthly payments
that have two components, rent and additional charges that count toward a down
This upfront money is often called “Non-Refundable
Earnest Money”, or “Option Fees”. A good example would be if you agree to buy a
$185,000 home, paying $3,000 up front money, and monthly payments of
$1,500($400 of which goes toward the sale price of the home). At the end of one
year, you will have $7,800 towards a down payment, and $17,400 after three
years. $400 x 12 = $4,800 + $3,000 non-refundable earnest money.
But, if you decide not to proceed with the purchase for whatever
reasons, it is unlikely that any of your beyond the rent payments will be
refunded. For this reason, buyers should only consider a “Rent to Own” option only if they are serious about
purchasing a home, but need more time to arrange for financing, or have other
legitimate reservations. If you decide you don’t like the home after a year or
two, all your payments toward the sale of the home is forfeited. Rent to Own contracts may be a
good choice if:1. A buyer wants to take advantage of an attractive selling price,
but just needs a little more time to save up their money for the down payment.
2. The buyer may need more time to improve their credit history
and to qualify for a better mortgage interest rate on a loan.
3. The buyers wants to make certain that the house has no serious
problems, or wants to experience living in a neighborhood before becoming a
home owner. Then, if the buyer decides not to proceed, they may forfeit the
money credited to purchase the home. But, these losses could be small
compared to the potential cost of multiple real estate transactions or property
repairs in order to resell the house, and find a different home.
In any case, buyers should plan very carefully and make every
attempt to ensure they can complete a purchase transaction at the conclusion of
the contract. It’s also essential to work with a qualified real estate attorney
to make sure the contract terms are favorable to your needs and the seller is a
legitimate owner. In the state of Texas, it is highly recommended that use
utilize the services of an attorney to help you with any “Rent to Own” or even those “Lease Purchase Contracts”.Some of the Short Comings of a Rent to Own to Deal are:1. Interest
rates may increase. If the
rates rise, higher monthly payments could make it harder to secure financing at
the conclusion of the rent-to-own contract.
Changes. If market prices decline, will the buyer be stuck paying a
premium price for the home? Conversely, if prices rise, does your contract
provide protection from the seller seeking a different buyer?
contracts say that if your payments aren’t received on time, they don’t count
towards the down payment.
scams. Make sure the seller isn’t going through foreclosure. You don’t
want to make inflated payments. only to be served eviction papers when the bank
takes possession of the property.
Rent to Own contracts
are not for every buyer. But in some cases, it can be an attractive option. If
you think “Rent to Own” may be the right choice for you, Contact your Local Killeen
Real Estate Agent, who can answer your questions,
and help you find suitable properties, and direct you towards an attorney for
legal counseling on these types of contracts.
Author:Ron Cooks Phone: 254-702-0064 Dated: October 6th 2014 Views: 715 About Ron: I’m a retired Army Warrant Officer that served our nation for 25 years. I was born and reared in ...
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