Trying to buy a house while still paying rent may appear to be a Sisyphean task. When you finally reach your goal of saving enough money for a down payment and closing costs (which are calculated as a percentage of the purchase price), you may discover that the goalposts have shifted and the hill is much higher than you anticipated because house prices continue to rise. Even if you save money each month for a down payment and other home-buying expenses, you still pay a sizable portion of your income in rent.
Prospective buyers are naturally interested in rent-to-own homes, in which tenants pay a higher monthly rent in exchange for the option to purchase the home at some point in the future.
Prospective buyers should be wary of the rent-to-own real estate market and ensure that any contracts they sign allow them to back out if concerns arise. Let’s shed light on some important things to keep in mind while going for rent-to-own properties.
Things to keep in mind before signing rent to own home agreement
Spend some time researching the market.
Before looking for rent to buy homes, you should brush up on what is acceptable in your market to make a fair offer to the seller (and to yourself!).
- You should become as familiar with these factors in your market as possible, down to the city, ZIP code, and neighborhood level.
- What is the current average price of a home? How much do you charge in terms of square feet? What is the average selling price in this area?
- What kind of monthly payment can one expect to make when renting a home? How much does it cost to rent one square foot every month? How does the average rent stack up?
- How have housing costs in this city changed over time? How quickly or slowly do property values rise compared to the national market and comparable areas?
- What the most common house repair issues were for people in this area?
Submit a bid and negotiate terms with the vendor.
There are significant differences between an offer on rent-to-own properties and an offer on a home to buy.
Instead of an offer letter, you will send a rent-to-own proposal to the current homeowner. The proposal will cover the entire scope of the transaction, including the eventual sales price, the length of the period (during which you would rent the property before purchasing it), and any other relevant terms.
The seller may accept all of the terms you’ve outlined in your proposal, or they may have other suggestions. You and the seller will negotiate the transaction’s terms until you reach an agreement.
Only put pen to paper once you have all the details; this is too important a transaction to enter into without them.
Get the house inspected
Before making any major purchases, whether you’re renting with the option to buy or buying outright, you should always conduct a thorough home inspection.
A home inspection is a formal report that details all of the problems that may be found with the house. If you’re determined to buy the property regardless of the inspection results, you should still have it checked out. This will assist you in planning for any required maintenance after you’ve moved in.
You should decide whether or not to have a home inspection performed during the purchasing process after you have lived in the house for at least a year, preferably three. However, as a tenant, you should have the house inspected before moving in, as this will provide you with an official record of any flaws with the property that existed before you moved in.
You must pay the option fee
Renters who want to buy their landlord’s property when it goes on the market usually pay a rent-to-own option fee to the seller or landlord. The option fee is typically a percentage of the home’s final sale price, ranging from 1% to 7%.
If you are given first dibs on a home and decline the offer, the seller is usually entitled to keep your option money because they fulfilled their end of the bargain by making the property available to you.
Only you and your family can decide if rent-to-own homes are in your best interests. Speaking with a professional real estate agent like the ones from Stop Renting Albany, who is knowledgeable about your prospective homebuying options, is an excellent first step toward accomplishing your goal of owning a home.
Consult the FAQ(Frequently Asked Questions) section for more information.
Is a strong credit score required to rent?
There is no magic figure you must meet to rent a house, but keeping an eye on your financial health will help make the process go more smoothly.
What is the difference between rent-to-own and mortgage financing?
Renting to own is a hybrid approach to house ownership in which all or a part of a lease payment is used to create equity in a property over time.
How much time does it take to rent a house?
If all paperwork is not correctly completed, first-time renters may face delays of up to three weeks before being permitted to enter their new home.
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