Searching For Rent-To-Own Houses: A Guide For Future Homeowners
The usual home buying process involves taking out a mortgage to finance the purchase of your house. However, getting approved for a mortgage will depend heavily on your credit score and having enough money to make a down payment. Sometimes these two conditions can't be met by buyers.
Maybe you don't have enough money saved up yet for your down payment? Or maybe you don't qualify for a loan? These circumstances don't have to keep you from owning a house! You can opt for a rent-to-own arrangement, allowing you to make payments and gradually buy the home when you’re ready.
Curious to find out how this process works? Keep reading to find out more about rent-to-own agreements. In this guide, you’ll learn how to find rent-to-own homes and how you can make sure you make the right choice!
What Is A Rent-To-Own Agreement?
Also known as lease-to-buy, rent-to-own agreements allow a renter to have the option to buy the property within a specific term. In these agreements, the buyer can start renting the house, then have the choice to buy it during their rental period. The title and ownership will stay with the landlord until the buyer either choose to stop renting or buys the property.
Who Should Consider Rent-To-Own Agreements?
Two main categories of house buyers may find this kind of contract most advantageous:
People who aren't financially ready, even if they want to become homeowners
People who can't get mortgages in a pricey loan market
The first category benefits from a rent-to-own agreement by buying time. Through regular rent payments, they can build a good credit score, put their finances in order, and "lock-in" the home of their dreams. Additionally, if the option fee or a portion of the rent is considered as rent credits, it will help pay off the purchase price and build equity.
The second category is comprised of those who have been disadvantaged by a non-conforming real estate market. Because of the high value of the loans typically needed in a home mortgage, many potential homeowners with good credit are priced out of applying for mortgages.
Their good financial situation despite these circumstances could make rent-to-own homes a viable alternative to mortgages, and they have the option to buy the property in full once they've saved enough.
Buying Real Estate Property
Talk to your landlord first to determine what will happen at the end of the contract. If you signed a lease-option agreement and you want to buy the property, you may need a mortgage or other form of financing to make a full purchase.
On the other hand, if you don't want to purchase your home or can't secure financing, your option will expire. This will force you to move out of your home as if it was any other property up for rent.
Any rent payments you would have made up to that point would be forfeited, including any paid option fee. However, you are at least under no obligation to buy the home or continue renting it from the seller.
Top Ways To Find Rent To Own Properties
Looking for rent-to-own homes? It’s not just scoping out real estate listings or checking out neighborhoods. You also need to be vigilant against unscrupulous sellers and avoid getting scammed out of your payments. Here are some tips for the best ways and places to find rent-to-own properties.
Find The Right Real Estate Agent
There can be many unfamiliar terms and conditions in a rent-to-own agreement. It's best to have the help of an experienced real estate agent who can explain these different clauses to you and make sure they're worth the purchase.
While sellers aren't necessarily planning to pull a fast one, they aren't exactly working in your favor either. A buyer should have an agent around to do some due diligence!
Contact A Property Seller And Offer To Rent To Own
An experienced real estate agent will be able to find homes that have been on real estate listings for a while. A seller with a lingering offer on the market will be more likely to consider renting out their properties. This is because these deals are mutually beneficial – the sellers will be able to get some extra money every year, and the eventual buyers will have time to save up for the final price.
Even if a seller isn't currently offering a house for a rent-to-own contract or lease agreement, your agent could make a proposal and see if they will be open to one. In many cases, you'll never know if you can enter rent-to-own contracts unless you ask – your agent can be the one to open negotiations for you!
Look At Foreclosed Properties That You Can Rent And Buy
Homeowners who are facing potential foreclosure are more likely to enter a rent-to-own agreement. Find out if the house is already in foreclosure, or if it's only in the pre-foreclosure stage. If it is the latter situation, the owner may seriously consider rent-to-own agreements to set the home's eventual sale and profit through your rent payment.
This kind of market has many quality properties at bargain prices, but be wary of homes tied up in legal matters. Talk to your real estate agent or an attorney before entering this kind of contract with a foreclosed home to ensure all your legal and financial interests are protected.
Get In Touch With The Right Landlord
Some landlords offer property for rent but may also consider selling them at the right time. If they're interested in selling their rental, a rent-to-own agreement is a great way to transition to an eventual purchase.
You could offer to make the contract worth their while by paying for maintenance and repairs out-of-pocket on the property – two landlord obligations that would be a huge burden off their shoulders if a buyer chooses to take them on. If the process goes smoothly, this would result in you being able to care for your own future home and keep it in good condition without resorting to an initial mortgage.
Search For A Real Estate Brokerage With Rent-To-Own Programs
Some agents or brokerage firms have dedicated rent-to-own programs, where they search for sellers with rent-to-own homes for you. These companies are similar to real estate investment firms and can help set the purchase of the home you want to own.
They will lease your chosen property to you, then give you the right to buy the home at the preset price after your lease is up. This allows you to decide if you like the property before you completely commit to buying it.
Search Within Your Personal Networks For Potential Homes
Sometimes the best homes are those that our nearest and dearest already own. Reach out to your close contacts to see if someone may be interested in an arrangement for a rent-to-own home. Advertising to your closer social contacts could work in your favor because you might already be familiar with the property.
You may also have a stronger degree of trust in these people and be more likely to come to terms that will leave all parties satisfied. Fair warning: despite these benefits, you should remember to have everything set in a contract to protect your interests as a buyer!
Important Things To Remember Before Signing Contracts
Before you fix your signature onto any document, there are some things that you need to find out. Otherwise, you may find yourself agreeing to terms that you can't afford to pay. This could lead to you forfeiting higher, fixed rent payments without purchasing the house – putting you at a disadvantage.
Here are some details you should keep in mind before you agree. For some of the more obscure or difficult terms in your contract, consult a professional agent or broker to explain them to you!
Fix An Purchase Price With The Seller
Your rent-to-own home should be covered by a contract that specifies its purchase price. In some contracts, the price might be determined only when the lease expires – the price is then based on the market value of the property at the time.
In other cases, the price is agreed upon by the signing of the rent-to-own contract. Many buyers choose this option, preferring to lock in a fixed price by the end of the lease. However, the prices for these contracts are often above market value, so think carefully before deciding when to set the purchase price.
Know The Difference Between Lease-Option And Lease-Purchase
Find out first if you're signing a lease-option or lease-purchase contract. In lease-option contracts, you have the right to buy homes after the lease expires, but you do not have an obligation to buy them. That means if you decide not to purchase the home when your lease term is up, the option expires and you can just stop renting the property.
This is not the case in a lease-purchase agreement. You may be legally obligated to buy the property at the end of the lease term, which you may not be financially ready to do. Talk to an experienced property attorney or agent before signing anything – you may need help breaking down some of the more complicated terms in the contract to determine which kind it is.
Find Out If The Rent Will Be Applied To The Principal
In the rent-to-own process, you will be paying rent during your lease term. Ask the seller if a portion of each payment made will be applied to the eventual purchase price. In some contracts, all or some of your option money might be applied to the purchase price at the end of the lease.
Ask Who Will Be Responsible For Maintenance And Repairs
Depending on your rental terms, you might be the one responsible for maintaining the home and making necessary repairs. This is ordinarily the responsibility of the seller/owner, so check your contract carefully.
Be sure that your contract specifies your responsibilities as a renter. Maintenance work like cleaning gutters and tidying the lawn is very different from paying for damaged roofs or replacing old fencing.
No matter what your responsibilities will be, talk to your agent, inspect the home, and get an appraisal. This will go a long way in reducing the possibility of unforeseen expenses!
Contact Us For Help With Rent-To-Own Transactions
Rent-to-own homes are properties that allow home buyers to immediately move into a house while they improve their credit scores and save money for your down payment.
However, it can be tricky to navigate the rent-to-own real estate market alone. To search for affordable rent-to-own property deals, book a consultation with Wesley Mortgage!
Our financial experts can help you go over your potential rent-to-own home contract and rights before you get a deal. Contact us if you need advice for a property option – we'll get to work right away on finding the best solution for your budget and credit score!