Would you want to own a home? If yes, you may have given thought to rent-to-own homes. Read the extract below to learn more about rent-to-own homes and the various considerations you should make before entering into such agreements.
What are Rent-to-own Homes?
Rent-to-own is an arrangement where you lease a house with the option of buying it at the end of the tenancy period. It is a preferable option for people with a bad credit rating since it enables them to build their credit rating as they live in their dream home. It is also a suitable option if you do not have sufficient deposit to take a home loan.
How do Rent-to-own Agreements Work
There are two types of rent-to-own agreements. A lease option allows you to purchase the property when the lease expires. However, you are not obligated to buy the property. With a lease-purchase agreement, you must buy the property when your contract expires. If you opt not to, the owner may take you to court.
An experienced conveyancer will evaluate the contract and determine the kind of risks you are exposed to. Some considerations to make include the following:
- Does the property have an outstanding mortgage? If yes, what would happen if the owner defaulted on mortgage payments?
- What penalties will you face if you are late in paying your rent?
- Are you liable for property maintenance charges?
- If you opt out of the contract, will you receive the accrued equity?
A non-refundable deposit (a small percentage of the purchase price) is often required once you sign a rent-to-own agreement. A small portion of your rent goes towards home equity. When your tenancy period ends, you will pay the agreed selling price less the accrued equity.
The selling price could be determined at the start or end of your tenancy. Most people choose to lock the asking price once they sign the contract. The reason behind this is that property can appreciate over time.
Purchasing the Property
Work with a reputable conveyancer when buying a property with a rent-to-own agreement. Other than a house inspection, the conveyancer will conduct some research to determine the reputation of the company providing the rent-to-own homes. If you have a bad credit rating, the conveyancer will help you work out your finances to ensure you can purchase the house when the lease ends.
Rent-to-own homes are ideal for people that cannot secure instant mortgages. Hire a skilled conveyancer to guide you through the process.
For more information, contact a conveyancing lawyer.