Owning a personal home is a universal dream of all human beings. Unfortunately, every individual doesn’t possess enough funds to make it a reality. Most of the buyers use a mortgage to finance the purchase. They submit a certain percentage of the unit price as down payment and then payback regular installments to the lender over the period of time till the borrowed amount is paid. However, to qualify this mortgage, a borrower has to possess a good credit score and sufficient amount to make down payment.
Those who are not financially strong to fulfill these two conditions, can’t take the benefit of this option. With an aim to help genuine property buyers, rent-to-own transactions are usually practised during housing market downturns. Individuals who are willing to own a lodging unit via this alternative approach, are requested to sign the contract and agree to rent the space for a defined time duration and complete the transaction before the lease expires.
Perhaps you are experiencing the same issues and unable to get a mortgage to finance the deal purchase, you can take the advantage of rent-to-own schemes. Provided that it is practised in the regional asset market. Before going forward I would like to thank Banke Downtown Apartments rental Department for giving such useful information.
Can we call it long term leasing?
Despite it include renting a property, it is totally different from simple long term renting. Soon after signing the contract you will immediately move in the rental for several years mostly for three years. During this time you keep on working to improve your credit score and collecting money to finance the deal. In addition to that, you have to fulfill certain terms and condition of the contract to finally become a homeowner.
Here I am briefly explaining the basic components of this deal to describe how it actually works.
There are no standards to decide the magnitude of this payment, though it ranges between 2.5% and 7% of the total price. This is an upfront one-time nonrefundable fee, you have to pay to confirm your interest. Usually, two types of contracts are offered, lease-option (allocates the right to buy but don’t obligate) and lease-purchase (obligate to buy). After considering your circumstances, you are free to select anyone of them after a mutual discussion with hat closing. Few of the contracts utilise option money to the final price
As your primary intention is to obtain a residential unit, the contract also indicates when and how the final price will be fixed. Buyer and seller discuss and agree on the final amount (higher than the current market value) while signing the contract. In other situations, a price can be finalised on market value when the lease expires. Most customers prefer to lock in the price while signing the contract. Especially if the market is showing steep price rises.
A specified amount is paid as rent, though landlord and tenant can also fix a percentage of each monthly rent payment as a part of the price. Duration of the lease is negotiable but ranges between one and three years. If you wish to credit the amount for the price, you will be paying monthly rent higher than the ongoing rates.
We all know wear and tear are mandatory to happen. No matter how carefully you are using the facilities. This agreement makes you responsible for complete property maintenance. You will become liable to pay repair charges, taxes, homeowner association fee and insurance. Even if you agreed to bare these expenses, you should take renter insurance to cover the loss of personal property. Also, ensure complete detail of maintenance and repair must be mentioned in the contract. Whether it’s nurturing and mowing the lawn, cleaning gutters and replacement of damaged fixtures, you must have it in written form.
Proceeding to final purchase
In case you are unable to secure the finances for the final transaction at the end of the lease, the option money you have paid is expired. Moreover, the money you spent on maintenance and taxes will also be lost. The homeowner is not liable to reimburse these expenses. In contrast to that, if you are proceeding to complete the deal, the option money and percentage of the rent you have paid for purchasing price will be deducted from the final price.
Despite allowing potential buyers to move into their dream house, you should not opt for it unless you totally understand the terms and conditions of this agreement.