If you're at a point in your life where you'd really rather not be residing in an apartment however you don't have the money to buy a house yet, an in-between option can get your foot in the door much faster. It's labeled as "lease-option agreement" or a "lease option". Before you consider this kind of set up, you should be aware of the many things that could go wrong.
A potential home buyer must:
Examine the seller's credit profile. Try to look for possible warning signs that the seller is in financial trouble, for instance delinquent accounts or maybe a great number of outstanding debt. Even after a satisfactory credit check, the buyer must still be cautious about any indicators that would indicate that the seller is in financial problem. Examples are phone calls from debt collectors and suspicious-looking letters that are delivered to the house.
Know that the seller could possibly lose the property during the rental period. It might occur for just about any number of factors: if he or she is unable to make the mortgage payments, a tax judgment are made on the property, he or she experiences a divorce, and is being sued, or others.
If the seller loses the home, the prospective buyer loses the possibility of purchasing the property, forfeits the extra rent paid and will be forced to locate a new place to live. One viable exception: in the event that the property becomes bank-owned through foreclosure, the bank could possibly think about selling the home as soon as possible to the rent-to-own buyer so as to avoid the complication of maintaining as well as marketing the property to a different buyer. In such cases, the rent-to-own buyer would need to decide whether the acquisition is feasible at the new date.
Always make sure that the lease option clearly confirms who is responsible for various types of maintenance or fixes. This contract should also specify the types of changes or improvements (if any) the potential buyer is allowed to render to the property during the lease term.
Be sure that you get into a "renting-to-own" rather than a "lease-purchase agreement". The former allows the technique to buy at any moment during the rental period, while the latter requires purchase by the end of the lease period and also has legal ramifications for backing out.
Conduct market research and get a home inspection. This is the way you could make sure that the home purchase price is fair before entering into a contract.
Be aware that should the seller is questionable, he or she can refuse to sell at the end of the lease-option period. It means that all the above-market rent money you've paid will be lost. A seller could possibly try to back out of the contract in case the real estate market has appreciated fast and the property significantly improves in value. Obviously, neither of these measures is legal, but if the buyer doesn't possess the financial resources to seek the services of a legal representative, there won't be much recourse against shady seller.
Know that if the market falls, the buyer will still have to pay the higher price stipulated in the contract to own the property. However, if the price is way too high, the lessee could just leave and search for a different property. However, the buyer loses that portion of the rent which could have progressed toward a down payment, therefore it's useful to do the math necessary to determine whether walking away is the best decision.
Talk to a mortgage specialist and be certain that you're in a position to buy the property. Simply because even when the lessee chooses to buy the house, it is possible that he or she might not qualify for the mortgage loan expected to make the purchase. Finding this out before going into a rent-to-own agreement, therefore, can conserve a lot of grief down the line.
Secure a condition of title report. This tends to assist a buyer learn how long the seller has acquired the property. The more time the seller has owned it, the more equity and stability he or she ought to have built up in it.
Conclusion
Despite the fact that rent-to-own arrangements may have several potential pitfalls, they sure are a win-win scenario between a trustworthy seller and a prudent, financially responsible buyer. If you are able to find an arrangement that you can agree on and a property that you'd love to own someday, this can be the ideal way for you to step out of your apartment and put down some roots.
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