When it comes to the home
purchase, you will normally need mortgage in order to finance the purchase.
However, there are several prerequisites which you will need to fulfill in
order to purchase a home this way. For instance, you will need to have good
credit score and enough money to make a down payment.
The second option you can
go for is the rent-to-own option. Using this option, you rent a home and
purchase it before the lease expires. There are two agreements involved in a
rent-to-own agreement; i.e. a standard lease agreement and an optional
agreement to purchase the home at the end of the lease. However, the terms and
conditions and other factors make the process a bit complicated for the ones
looking for simpler home purchase options.
Option money
If you want to purchase
rented home through rent-to-own option, you will have to pay option money to
the seller. It is the fee which is nonrefundable and you pay it to tell the
seller that you are interested in buying the home. After paying this fee, you
get the option to purchase the rented home by some date in the future.
Typically, this fee is the 2.5% to 7% of the total price of the home. In many
cases, the option money is applied to the actual purchase price when you pay it
to make the purchase finally.
Read the contract
carefully
The contract is going to
be prepared only by the seller and you will need to follow the terms and
conditions mentioned in that contract. If you are going for the lease option,
your contract gives you the right but not an obligation to purchase the home at
the end of the lease. Thus, you can walk away without buying the home if you do
not want to purchase the home
On the other hand, a
lease-purchase option binds you in an obligation to purchase the home at the
end of the lease. It means that you will have to purchase the home under this
agreement whether you can afford or not. Since this contract may be quite
complicated than what it may seem, you need to discuss about this agreement with
your attorney before the signing the contract.
The purchase price
It should be specified in
a rent-to-own agreement when and how the price of the home is to be determined.
In some cases, the purchase price is determined at the start of the contract.
In other cases, the price is determined at the end of the lease agreement. It
mainly depends upon the market situation.
Know if your rent can
help you in buying the home
You can also specify if a
portion of the monthly rent can go into your credit which you could use while
purchasing the home. For instance, the monthly rent you are required to pay
every month is $1200. The 25% of the rent is credited towards the purchase
price of the home. If it is a 3-year lease agreement, you are going to earn $10,800
rent credit at the end of the lease. It means that you can deduct the credit
from the purchase price. When you go for such agreements, you typically pay
higher rent so that a reasonable portion of rent could be credited to the
purchase price.
Rent-to-own is the great
way to purchase a home if you want to avoid getting into the troubles of
mortgage. You will have an adequate time period to arrange money for the
purchase. Moreover, there is an appropriate room for flexibility in a
rent-to-own agreement. All you have to do is to make sure that you know well
about the deal you are making.
