Is a Rent-to-Own Home Having Your Cake and Eating it Too?
Written on January 3, 2009 by admin
Is a Rent-to-Own Home Having Your Cake and Eating it Too?
By Mark Brosius
Your lease is up soon and you want to buy a home, only you don’t have a large down payment to make it happen. So now what? Renew your lease, find another place to rent while you save up for a down payment? Then, move again when you finally buy that house? What if you had an alternative to moving twice and moved into that American dream now? How? That is what rent to own can do for you.
What is a Rent to own agreement? ( also called lease-to-own or a lease-option agreement) And WIIFM (What’s In It For Me)
A Rent to own and Option to purchase agreement are;
1. A lease that allows you to occupy the home and
2. An option that allows you to purchase the home in the future at an agreed-upon price by an agreed-upon date.
What’s in it for you? Find the home you want to buy, rent it now and buy it later and you don’t have to move twice. If you’re anything like me, moving is right up there on the “life’s to short list” of things to do. That’s not the only thing in it for you, read on. A typical rent to own-option agreement requires you to pay a slightly higher monthly rent for the home and obligates the owner to credit a portion of that rent toward your down payment.
For example, if the owner’s expected market rent were $1,200 per month, he or she might increase that to $1,500 per month and apply $300 per month to your down payment. After one year, you would have a down payment credit of $3,600. Also a typical rent to own-option agreement may require a Non-refundable Option Consideration for the option agreement. This would be added to your rent credit when its time to buy the home and at that time would be part of your down payment.
The idea is to accumulate the down payment over time and when it’s time to get a mortgage, you are ready to go. All these things would be spelled out in a formal contract. The rent to own and option agreements specifies the monthly rent, and amount of rent that will be credited to the down payment. The sales price and the expiration date of the option would be specific. Any contingencies like, your right to obtain a home inspection or other important terms of the agreement should be stated in the contract.
The rent to own - option to purchase ordinarily allows the owner to sell the home to you without paying a commission to a real estate broker. So, you miss out on the broker’s advice, expertise and assistance. It then is a good idea to have a real estate attorney or title company attorney go over the contracts with you to explain the terms and answer your questions. And, of course, payment of other closing costs such as title insurance and transfer fees are subject to negotiation and should be addressed in either the lease-option contract or it can be added later to that contract.
A benefit to you is that a Rent to Own - purchase option isn’t an obligation to buy. A rent to own-option doesn’t obligate you to complete the purchase. It is an opportunity to do so with the advantages of a known purchase price and a rent credit toward the down payment. If you decide not to exercise the option to purchase the home, your credited rent usually is forfeited to the owner. You would forfeit the non refundable option consideration also.
This money is a form of compensation to the owner for the option. Remember, he can’t sell it to anyone else when you have an option to purchase during that time. Reasons why you might decide not to exercise purchase option include; lower property values in the area, an inability to obtain a mortgage, a job transfer or disenchantment with the neighborhood or the home, among others.
Who pays what? Taxes, insurance, repairs The owner is responsible for property taxes and insurance. Many contracts require you to pick up the repairs and maintenance of the property during the lease-option term up to a certain dollar amount. Likewise, the owner, not you, would suffer a loss if the property were damaged or destroyed by a natural disaster that occurred during your lease-option term. Most often, your rent to own contract will require you to purchase separate renter’s insurance to cover your own personal belongings. Of course, once you purchase the property at the end of the lease-option term, you’ll be responsible for the taxes, insurance, and repairs related to the home.
Mark Brosius invites you to learn about rent-to-own home ownership
and get on our list of available properties for the Metro Indianapolis
Indiana area. http://theindyhome.com
(c) Copyright - Mark Brosius and theindyweb.com. All Rights Reserved Worldwide.
Article Source: http://EzineArticles.com/?expert=Mark_Brosius
http://EzineArticles.com/?Is-a-Rent-to-Own-Home-Having-Your-Cake-and-Eating-it-Too?&id=1233343
Posted in indianapolis rent to own homes