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frequently asked questions
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what is rent to own?
what is owner financing?
steps to buying your home:
what is rent to own?
Rent-to-own (also called lease/option, and/or lease purchase) refers to a contractual arrangement between the tenant and landlord whereby the tenant rents the property, much like any rental arrangement you have had. The difference is that the tenant also has the GUARANTEED right or option to buy the property at an agreed upon price sometime during the rental period. This is kind of like a “rain check” at a department store. While the tenant has the OPTION to buy the property, he/she DOES NOT HAVE TO buy it. The landlord MUST SELL the property to the tenant at the agreed upon price, if the tenant so chooses.
Benefits to you of Rent-To-Own Housing
Depending on your particular situation, there are several advantages of a Rent-To-Own house over a standard rental house:
Rent-To-Own allows you to move into your own house now, with a relatively small down payment, even if you have credit problems that would keep you from buying a house. Once you are in the house, we work with you to improve your credit over the next year or two, so you can easily qualify for a good loan.
Once you have lived in the house for 1-2 years, we help you get a refinance loan, which is often easier and cheaper than getting a loan to purchase a house.
Generally, you can treat a rent-to-own home like your own home. You can paint and decorate it to suit your tastes and make improvements you would never think of doing with a home you are just renting.
A rent-to-own home let’s you ‘try out’ an area or house before you are actually locked into a 30 year mortgage.
How Do You ‘Rent-To-Own’ a House?
Rent-To-Own is a simple process! The tenants and landlord sign a Lease Agreement and an Option To Purchase Agreement, each about 2 pages long. Generally, the Lease Agreement on a Rent-To-Own home differs from a standard Lease Agreement in 2 ways:
There is an option fee paid to the landlord for the guaranteed, exclusive right to purchase the property during the lease term. This is similar to the down payment required on most home loans, but is generally less money. Typical option fees range $3,000 to $7,000, depending on the home and your credit history.
If the tenant buys the property during the lease period, the entire option fee is credited to the tenant as part of his/her down payment. If the tenant does not purchase the property, or if he/she defaults on the lease agreement, he/she loses the option consideration.
Because the tenant is to become the owner of the house, typically the lease requires that the tenant be responsible for all day-to-day maintenance and repairs under a fixed amount (usually under $400). All this means is that you will fix the leaky toilet, change the light bulbs, etc. If the furnace or roof needs replacing, the landlord is responsible for those major repairs.
The Option To Purchase Agreement simply states that the tenant has the right to buy the property at a fixed price during the lease period.
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what is owner financing?
Wth some houses we are able to actually provide the loan for you, without you having to go to a bank. This works well if you have a good sized down payment (at least 8-10% of the purchase price- $15,000-$25,000) but have bad credit, that keeps you from getting a reasonable loan.
Owner financing can also work well for investors who want to acquire more properties, but don’t have a 25% down payment, or don’t want the loans to show up on their credit report.
With owner financing, you actually buy the property from us and make monthly mortgage payments to us. The advantage over the rent-to-own option is that you get all of the tax benefits of owning the home, which can save you thousands of dollars every year on taxes. You also own the home and can do major improvements, additions, and whatever you want (within reason). Often times, there are less loan costs than if you had gotten a traditional home loan.
Doing owner financing is also a fairly simple process. The buyers and sellers sign a Purchase Contract, an Installment Land Contract, and a couple of other short documents. The paperwork takes about an hour and a half, and then you own your own home.
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steps to buying your home:
Attend to your credit.
You need to understand how long it is going to take you to be where you want to be. Do you need to make minor improvements in your credit? Do you need to make major improvements in your credit? Our partner, Your Mortgage, is standing by to help you determine how long it is going to take you to get Mortgage Ready. They will look at your credit report (they have you pull your report so it has no effect on your credit), and they review it to help you determine what it is going to take to get to where you and your Mortgage Broker have determined you need to be.
They are not a “Credit Repair” company. Credit Repair is often a scam. The excellent team at Your mortgage has a proprietary system for working with the three big Credit Reporting Agencies. This system was developed because of their understanding of the big agencies. They should understand the big agencies, they worked at those same Credit Reporting Agencies for years. They know exactly how those agencies work. There is a small fee for this service.
Speak to a Mortgage Broker.
Buying conventionally, or Rent-to-Own, you should know what it is going to take for you to take out your own mortgage on your new home. Building a lifelong relationship with a Mortgage Broker is incredibly advantageous. They can advise you, and they can help you stay on the right track for finding your dream home. They can advise you on how much house you can afford to buy due to your income. They can advise you on where you need to be, based on your current debt to income ratio, in order to qualify. They can discuss with you if you need to pay down some of your debt, and if so which debt, in order to get the best rates. They can give you an idea of where your credit score should be in order to affect your payment so you can get the most home for your dollar. Get Mortgage Ready. Talk to one of our preferred Mortgage Brokers now. (Jena@YourMortgco.com)
Make the decision.
How long have you decided that you need until you will be Mortgage Ready? Will it only be a couple of months? Perhaps you should stay in your current arrangement? Are you ready to get a Mortgage now? Will it be more like a year?
Wow! So many questions. So much of this will depend on what it will take to get your Credit score to where it needs to be. But, there may have been other factors that impact you. How much home do you qualify for with your current income? Do you need to pay down some debt? So, let’s try to answer some of the questions.
Are you ready now? Did you and your Credit Consultant or Mortgage Broker decide you should do an application and get prequalified for a loan? Congratulations!
Will you need nine months to a year? More? Is Rent-To-Own (sometimes called Lease Purchase) right for you?
Do you have a larger down payment? Enough to have 8% or 10% down? Is Owner Financing a better option for you?
Do you need some time to increase your income so you can qualify for more home? Do you need some time to pay down some debt? Do you need some time to build a little money towards down payment so that you can do Rent-To-Own. Then, perhaps finding a rental is right, for now.
Let’s find you that home.
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