lease to own
In the present economic scenario, people have lower credit scores and less money to put down when it comes to buying of a property. Therefore, Rent-to-own or lease to own is the best option in the present situation.
A lease-to-own option is a lease combined with an option to purchase the house within a specified period. Though this period is mutually agreed upon by the seller and the buyer, it is generally 3 years or less. The price of the property is agreed upon at the time of signing the lease. Therefore, the buyer can buy the property at a pre-fixed price even if the price of the property goes up in the future. The buyer is obligated to pay a slightly higher rent as a part of the rent goes towards the down payment. This money can be anywhere between $25 to $200 per month. Though the buyer is not obligated to buy the property, he/she loses both the option fee and the rent premium if he/she opts not to buy the house later on. Also, the seller is obliged not to sell the house to anyone else during the lease tenure.
The option fee and rent premium may hold different significance for the buyers and sellers. To the buyer, these two form the part of the equity in the house which he/she intends to buy later. To sellers, these two serve as the best guarantee that their house will sell. If the buyer doesn’t buy the house later, the payments would be retained by the seller as income. This way the option of rent-to-own serves as a win-win situation for both buyer and seller.
Though this option can be a win-win situation for both the parties, there are a few things which should be kept in mind.
The option should be formalized into a written contract that specifies everything like the monthly rent, the amount of rent that will be credited to the down payment, the sales price and the expiration date of the option.
As a seller, you have to understand that not all sellers are good candidates for this option, especially the ones who are in financial trouble. Such people have a greater chance of defaulting on their mortgage.
As a buyer, you should know that not all properties are good candidates. Therefore, it is advisable to conduct all the inspections before signing any agreement as you would do in a regular sale. You should get the home inspection done. Get the title checked so ensure that the property is clean and there are no unpaid taxes on the house. Obtain the pest inspection, roof certificate and home warranty before getting into the agreement.
The owner of the property is responsible for property taxes, insurance, and repairs and maintenance of the property during the lease-option. Likewise, the owner would suffer a loss if the property were damaged or destroyed by any natural disaster that occurred during the lease-option term.
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