There are myriad options for buying a house involving different types of mortgages. But have you heard of rent or lease-to-own options?
Rent to Own Tips From Rhino
The process of renting to own doesn’t mean you suddenly approach your current landlord and ask if you can buy the property you’re renting. A rent-to-own agreement is usually agreed upon prior to signing the lease. As experts in Utah property management, Rhino has some tips to consider when looking at rent-to-own options.
How Long Do I Have to Rent?
As a tenant, you may be wondering how long you have to rent a property before you can buy it. This pre-determined amount should be agreed upon with your landlord before you sign your lease. You and the landlord will specify the rental period, and whether you’ll have the option to buy the property before the lease expires.
What are the Fees in a Rent to Own Agreement?
Similar to putting down a payment for purchasing a home, in a rent-to-own agreement you may be required to pay a one-time fee known as an option fee. Like a down payment for buying outright, it’s a percentage of the purchase price of the home. Unlike a down payment for buying outright, however, the option fee is usually as low as 1 – 5% of the purchase price (vs the traditional 20%).
Lease Option vs Lease Purchase
What’s the difference between a lease option and a lease purchase? When you sign a lease option agreement, you have the option to purchase the home before the rental agreement ends. In a lease purchase agreement, you are contractually obligated to purchase the home before the rental agreement ends.
What if I Choose Not to Buy?
If you’ve signed a lease-option agreement and the lease expires, you can choose not to purchase the house, but you may need to vacate the property. Any money you’ve put toward the rent-to-own lease option is typically forfeited as outlined in the agreement. If you do want to pursue the option to buy, it’s time to secure the necessary financing to make the home yours.
If you’ve signed a lease-purchase agreement and choose not to purchase the house, you could be sued for being in default of the contract. Even if you have to walk away because you can’t get approved for a mortgage, you’re still liable for fulfilling your end of the agreement.
Does My Rent Go Toward the Purchase Price?
As with the length of the rental period, in a rent-to-own agreement, your rent payments can be dispersed in different ways. You might be making payments toward the purchase price, or you might just be making payments for the landlord’s current monthly expenses for the property. Sometimes, a small percentage of your monthly rent payment goes toward the purchase price of the property.
Whatever the case, be sure it’s clearly defined in the rent-to-own agreement you’ve signed. Rent may or may not be applied toward the principal balance still owed on the house for your benefit or the landlord’s.
Is a Rent-to-Own Agreement Right for Me?
Right now in Utah, the real estate market has made it difficult to afford a home. Especially for first-time home buyers, housing prices have put that dream out of reach. Plus, many people have recently relocated to Utah, creating a supply and demand issue that inflated home values.
In a high-cost market, renting and renting to own makes a lot of sense for people. You may not be ready to purchase a home just yet, but in a year or two, it could be more financially feasible. Before you sign any contracts, however, be sure you have answers to the following questions:
- What is the rental period?
- When can I pursue the option to purchase the home?
- Am I required to purchase the home if I rent it?
- What is the option fee and the monthly rent?
- Who is responsible for maintenance?
- How much equity will I have if/when I purchase the home?
Always defer to the expertise of a lawyer and a real estate agent when establishing a rent-to-own agreement. There can be a lot of fine print in any contract, and you don’t want to miss anything.
CONTACT RHINO PROPERTY MANAGEMENT TODAY
(801) 981-5237
If you have more questions about renting in the Utah market, get in touch with Rhino Property Management today.