Sometimes it can be difficult to sell a home. If you have a home you are trying to sell but the market is not conducive to it, you could choose to try a rent to own option for someone who may be interested but is not yet able to buy a home. Someone may be looking at purchasing a home but does not yet have a down payment or does not have a good enough credit score. That person may be an ideal candidate for rent-to-own.
A rent-to-own can also be called a lease-to-own and would be similar to leasing a vehicle. The renter would pay a set amount each month and at the end of an agreed upon period he would have the option to purchase the house. The rent that is paid is rent but a portion of it will be considered a down payment that will go toward the purchase of the home. Because of this, rent is usually set at higher than the market value.
Important Things to Keep in Mind
It is important to have a clear and detailed contract as there can be a lot of variables in a rent-to-own property. There are advantages and disadvantages for both parties involved and it is necessary to have the terms laid out. If you are a seller and have bought another house, the rent collected on the rent-to-own will make it easier to pay two mortgages. If you are the buyer and are not in a financial position to buy a home right away, this can help you to get one more quickly.
As a homeowner, before you decide to enter into a rent-to-own agreement you need to decide on a final sale price for your home and what amount you will charge for monthly rent. This is something that can be negotiated between you and the buyer in much the same way an actual sale would be. Both parties need to be aware that signing the agreement will lock the sale price in, regardless of any changes in the housing market.
There is also a fee called an option fee. The renter pays this to the seller and if, at the end of the lease, the renter decides to buy the home, the fee is counted toward the down payment. If the renter chooses not to or is unable to purchase the home, the fee is kept by the seller.
So for example, if the house is a $200, 000 home and rent would usually be around the $1000 mark, in a rent-to-own agreement the rent may be set at $1, 200 a month and $200 each month would go toward the purchase price of the home at the end of the lease. If the renter pays a $5, 000 option fee and accumulates $200 a month, at the end of a three year lease he would have $12, 200 toward the down payment of the home.
This is a great way for someone with no credit rating to accumulate the necessary funds for the purchase of a home. The upside for the seller is that even if he does not sell the home, he is not paying two mortgages at once.
If you are interested in learning more about a rent-to-own home in the Regina, Saskatchewan area look no further than Kodiak Property Management. The professionals there will be able to determine if it is the right option for you.