Common Sense Solutions for todays Real Estate Market
Buyers FAQ
Will I have to pay higher rent for a “Rent to Own” home?
It is not uncommon that the monthly rent for a “Rent to Own” is slightly above what you would pay for a traditional rental. Generally, there are rent credits that go towards your purchase, to help offset the higher rental rate.
What would happen if the Seller of my “Rent to Own” home stopped paying their mortgage?
This is a challenge that has been seen when there was an unscrupulous Seller involved. They just collect the “Rent to Own” earnest money and the rent until the property is foreclosed and the Buyer loses all their money. Our contracts deal with this to prevent that from occurring. The contract gives the Seller the option to let the “Rent to Own” Buyer make the mortgage payment and send any overage directly to the Seller, or the Seller has to supply the Buyer documentation on a monthly basis to confirm that the mortgage is current.
How would I know the property was not in pre-foreclosure or foreclosure when I am trying to buy it as a “Rent to Own” Buyer?
All of our “Rent to Own” transactions are handled with a Title company to ensure that the property is in good standing with all lenders and to insure that the Seller holds title to the property. If, in-fact, the property was in any state of foreclosure or even one month delinquent on the mortgage you would know, and the transaction would not be allowed to proceed.
When I am ready to close on the purchase of the home, what would happen if the value is less than the negotiated purchase price determined in the “Option to Purchase Agreement”?
Knowing that housing prices have dropped so dramatically over the last several years, this is a valid concern. Our Rent 2 Own contract dictates that if the home does not appraise for a mortgage to purchase the property for the option contract price that either one of three things could occur:
The Buyer and Seller could renegotiate purchase price to appraised value.
The Buyer and Seller could agree to extend the contract for an additional 12 months in hopes that the market will warrant a higher appraised value at that time.
If unable to renegotiate to appraised value, the Seller will be required, per the contract, to refund a portion of the lease option fee paid by the Rent 2 Own Buyer up front.
How much should I expect to pay for the option fee on a “Rent to Own” property?
In general, the standard is between 3.5-5% of the negotiated purchase price. This is why a “Rent to Own” is preferred by many over a Contract for Deed, which normally requires a minimum of 10-20% down, and if the home does not appraise when the balloon payment is due, you are out of luck and a load of money.
Who is responsible for property repairs on a “Rent to Own” property?
Generally, repairs are a shared financial responsibility on a “Rent to Own” property. It is common to see the Rent 2 Own Buyer be responsible for repairs up to some negotiated value and the Seller would be responsible for repairs exceeding the agreed to dollar value. For example, the negotiated contract stipulates that the Rent 2 Own Buyer is responsible for repairs up to $250, and a $400 repair needs to be completed. In this example the Rent 2 Own Buyer would pay $250 and the Seller would pay $150. Also, in most contracts the Rent 2 Own Buyer is not responsible for necessary repairs for the first 90 days. We also suggest that Rent 2 Own Buyers get a home inspection just like a normal purchase to discover any needed repairs in advance.
What happens if my option period expires before I qualify for my mortgage?
If your option period expires before you qualify for a mortgage, the Seller no longer has an obligation to sell you their “Rent to Own” home. However, our contracts do allow, if negotiated, a clause to extend the rent to own period if needed.
That is why we require you to speak to a local mortgage specialist within our referral network before you sign any “Rent to Own” contracts. You need to get an idea of how long it will take for you to qualify for a home mortgage. Imagine moving into your rent to own home with a 12 month option, and then you find out you can’t possibly qualify for a loan for 2 years!
This is especially true if you have recently filed:
You will get an idea of how long your option period needs to be by following along in our “Rent to Own” Road Map.
Bankruptcy
Foreclosure
Deed-in-lieu
Short Sale
Etc.
You will get an idea of how long your option period needs to be by following along in our “Rent to Own” Road Map.
Will the contracts protect my interest in the property?
It is extremely important to leave as little to chance as possible. All agreements must be in writing, nothing verbal. If it is not in the contract then it simply does not count.
One of the most important documents is the Memorandum of Option. This document will be filed with the County establishing your interest in the property. This way the Owner will not be able to sell property to someone else or take out any additional loans against the property without your knowledge and permission.
All of our Rent to Own Transactions are executed at a Title Company. The Title Company will file all of the appropriate paperwork to protect your interests.
How will I be able to qualify for a mortgage if my credit is not the greatest?
Well, with the economy and the housing market crash over the last several years, let’s just say you are not alone. The answer is: If you have credit challenges, you most likely will not qualify right now. However, by meeting with one or our local mortgage professional from our referral network, you will learn based on your current income, employment history and credit, how soon you should be able to qualify and for what size mortgage. Remember, this is a crucial step to insure your option period and mortgage size will qualify you to purchase your Rent to Own home.
How much money will I need for closing on the purchase once I am ready?
The amount of money you will need for closing will be based on the type of mortgage you get and what you are able to negotiate with the Seller. But rest assured, before you sign any contracts, you should have a final sit down with your mortgage broker to determine what your estimated closing costs should be to make sure the home will meet your budget.
How much of my rent will go towards a credit for the purchase of my “Rent to Own” home?
We receive calls every day from families who are interested finding a “Rent to Own” home, and they often believe that the rent that they will pay would be 100% credited towards the purchase price. It is very uncommon to find a Rent 2 Own home where 100% of the rent goes toward your purchase price.
More commonly we see 10-20% of rent offered as a credit, which is a generous amount. However, there is no “industry standard” or “normal” percentage, so when you are discussing what percent of your rent goes toward your purchase, negotiate as much as you can! Remember, unless it is written in the contract it is not enforceable. Our contracts spell out all rent credit agreements so that there is no room for misunderstanding.
Will I be able to extend the option period if I need to?
When you sign a Rent 2 Own agreement, you are given a certain period of time to purchase the Rent to Own home for a pre-determined price.
What happens if you are just a few weeks or months away from qualifying for your home loan when the option period you originally agreed on expires?
Well, if you have a simple rent to own agreement setup, you will simply lose the option to purchase the home and the Seller is no longer obligated to sell their home to you. You could lose all the equity you have built in the home. That includes the option fee, rent credits and any appreciation.
Our contracts do address that issue, but it will be up to you and the Seller to pre-negotiate any rights to extend the option period prior to the signing of any contracts. As a general rule, we do believe it is a good idea to pre-negotiate this up front.
