When renting to own, you enter into an agreement with the homeowner to pay rent monthly in a particular period like a regular rental agreement. For this case, the monthly payments go toward reducing the total purchase price of the house. After the stipulated period, there is an option to buy the property. This deal is ideal in slow real estate markets to help homeowners easily sell off their properties.
Things to know about rent to own homes
Obtaining and reviewing the agreement
The first thing is to sign a rent to own agreement with the property owner. This states the sale price of the home or an agreement to pay a fair market price for the property on the expiry of the lease. Additionally, the contract indicates the duration of the lease before deciding to purchase it. It also states how much you are to pay in monthly rent and the percent to go towards the final sale price of the property.
The agreement should include the responsibility of everyone towards maintaining the home including routine repairs. Keep in mind that local laws might come in to determine the role of the property owner to pay regardless of the agreement terms. It pays to work with a professional agency to ensure that you sign an agreement with fair terms for everyone.
Buying a home is a big decision. Therefore, opting for rent to own in BC is technically buying your own home. You have an option to purchase the property since part of your monthly payments goes towards reducing the total cost of the home. Not purchasing the property at the end of the lease period might make you lose those monthly payments. An independent appraisal on the property before putting pen to paper is very important.
This allows determining the fair market value of the property when considering a purchase price when signing the rent to own agreement. It eliminates the chances of getting ripped off. When agreeing to the purchase price at the signing of the agreement, the value remains even after the lease expiry. Lenders don’t lend exceeding the appraised value for the property. You will have an obligation to pay the difference.
Schedule an inspection
After an appraisal, a home inspection is also important before signing the rent to own agreement. This allows avoiding costly repairs after purchasing the property. A home inspection before signing the agreement eliminates the chances of falling for fraud. This ensures that tax on the property is paid consistently and there are no liens. Additionally, an inspection confirms the true ownership of the property before you sign the agreement.
During the home inspection, recent tax bills are reviewed including verifying the ownership of titles to the land. Check whether there is a recent mortgage statement. A real estate attorney is required to review the agreement while explaining the renter’s rights. This is necessary before signing the agreement and paying an option fee.
Payment of the option fee
Paying a onetime fee is necessary after signing the rent to own agreement. This gives you a chance to buy the property after the expiry of your lease. The option fee might be nonrefundable. In addition, it protects you from other people wishing to buy the property before your lease expires. This works like a down payment for the property and is usually a portion of the property value.
When you decide to purchase the home when the lease expires, the option fee is deducted from the total purchase price. The option fee is compulsory for situations where there is no backing out of buying the property. In addition, you might not get your money back. Ensure to review the financial obligations in the agreement before putting pen to paper.
Timely monthly payments
The rent to own agreement requires making timely monthly payments. Late or missing payments make the agreement void. This puts you at risk of losing the money invested in the property already. Late payment might not make your contractual obligation void but that month you might miss lowering the total price despite the extra payment. Timely payments allow building credit to make acquiring a mortgage easier after your lease expires.
Getting a mortgage
Shortly before the lease expires, you have to prepare to purchase the property. This is a moment to shop for a mortgage. These have different interest rates and closing costs according to the lender. Ensure to shop around for the best bargain. This allows choosing a lender with your best interest at heart. You will have peace of mind that you are getting the best deal. Research the reputation of the lender including all related costs.
Purchasing your own home is one of the most significant investments to make in life. Even without a lump sum figure, there is a possibility to purchase your own home while renting it. This is through a rent to own agreement buy you have to mind about a few things highlighted above.