Our Real Estate Blog
If you don’t have a lot of cash on hand to secure a home with a sizable downpayment, you might feel stuck. It’s quite a feat to be able to save up the 20 percent cost of a home that is generally required to purchase a home. Your options may seem limited when you want to own a home. There is one option that could be a good idea to consider when you’re in this situation. That’s the idea of finding a rent-to-own property.
How Does A Rent-To-Own Property Work?
First, know that these properties are hard to find. That’s why you may not have thought of it as a first option. When you do find a property like this that suits your needs, you should know all of the ins and outs before you commit to the home. The agreement works just as it sounds, but there are always a few bits of extra text that can make the difference in any agreement in a rent-to-own property.
Lease With A Purchase Option
With this type of agreement, you’ll need to pay what is called an option fee in order to give you the right to purchase the property at a later date. The seller is then required to sell the property to you as a tenant and apply the option fee to the price of purchase. If for some reason you have paid the option fee and decide to walk away from the property after a time, the money that you have paid as an option is simply lost. The option fee is usually a percentage of the purchase price ranging anywhere from 2-7 percent of the home’s price.
Lease And Purchase Agreement Rolled Into One
In this type of rent-to-own agreement, both the tenant and the seller agree on fixed purchase price for the home, or agree that a purchase price will be determined at a later date through an appraisal. Everything is set up from the beginning including the closing date for the home.
This type of deal in a rent-to-own situation is often considered the better choice. Know that a fixed price option may put you in a better financial position than an appraisal option. You’ll have instant equity in the property when you buy it. This is especially helpful in high competition markets. In any other types of market, you may be better off with an appraisal. This ensures that you don’t overpay for the house.
How Your Rent Payments Apply
Rent-to-own gives you an advantage in that you get the added benefit of rent credits. This is where a percentage of your monthly rent payment is applied to the purchase price of the home. The amount of percentage that’s applied will be agreed upon with your landlord ahead of time.
While a rent-to-own option to purchase a property can be a bit more complicated than other ways of purchasing a home, it can be a great way for people different financial situations to become home owners. Make sure you go over everything carefully before you sign anything so that you fully understand the agreement you’re entering into.
When you’re shopping for a home, it’s easy to be overzealous in your attempt to find the perfect property. One of the biggest regrets of home buyers is that of paying too high a price for their dream home. There should be a balance between cost and the right property for you. No matter what kind of house you’re looking to buy or where you plan to buy it, a little planning goes a long way to help you get the most for your dollar when buying a home. Below, you’ll find some tips to help you avoid the dreaded mistake of overpaying for a home.
Look For Amenities That Increase Value
Does the neighborhood you’re looking to buy in have a lot of cool perks? Perhaps the property is close to the heart of downtown or close to one of the most desirable schools in the area. These features add value to the home based on the demand in the neighborhood.
You should also consider if the neighborhood is known as what’s termed “up and coming.” The potential that a neighborhood is also a factor in the price of a home. Is there a lot of construction going on in the area? Is the home you’re buying in a great area but considered a “fixer upper”? High potential properties in desirable areas can actually give you a bargain. A nice property in an area that is still being established can also be a bargain but beware. You may end up paying a higher price as sellers and developers understand that people are eager to move into the neighborhood. Also, if a neighborhood seems to be built up too much, it’s not a good sign. An overdeveloped area can lead to decreased property values over time.
Inside the home, look for things that have been updated to increase the value of the property. An updated kitchen and bathroom add the most cost to a home as these are the most expensive rooms to renovate. Other perks in a home that greatly increase the value include new flooring, new roof, being situated on a cul-de-sac or dead end street, and easy access to highways and main routes.
Know That Some Features Decrease Value
Things like power lines, poor economic growth in the community, high-traffic areas, foreclosures, and unkept homes can all drag down the value of a property. If you happen to be looking in one of these areas, understand that you shouldn’t be paying top dollar for a home there. Look for bargains. Whether you plan to stay or simply flip a property, you need to know at what point the price will be right without overpaying for the home.
If you plan to buy a house in the near future, you should try to map out the property buying journey. By doing so, you can identify any potential homebuying hurdles and resolve such issues.
To better understand what to expect when you pursue your dream home, let's take a look at three key questions that every homebuyer needs to consider.
1. Where do I want to live?
There is no shortage of high-quality houses available in cities and towns nationwide. As such, it sometimes can be tough to determine exactly where you want to live due to the sheer volume of available homes.
As a homebuyer, it helps to consider your future plans before you kick off a house search. For example, if you intend to enroll in continuing education courses at a university in a particular city, you may want to focus on homes near the city itself. Or, if you prefer to raise your family in a small town, you should plan your house search accordingly.
Don't forget to craft a list of homebuying criteria too. This list will help you further narrow your home search and focus on properties that have features that match your needs.
2. What can I afford to spend on a house?
Buying a home may prove to be virtually impossible if you fail to obtain a mortgage. Lucky for you, many banks and credit unions offer mortgages to homebuyers and can teach you everything you need to know about home financing.
Meet with a variety of banks and credit unions. That way, you can analyze a broad range of mortgage options and select a mortgage that corresponds to your finances.
In addition, it may be beneficial to get pre-approved for a mortgage. Once you are pre-approved for a mortgage, you can enter the real estate market with a budget in hand.
3. How can I achieve my desired goals?
The homebuying journey can be tough to navigate, regardless of whether you're a first-time or experienced property buyer. But if you collaborate with a real estate agent, you can achieve your desired results in no time at all.
A real estate agent understands what it takes to discover the right house, at the right price, regardless of the housing market's conditions. He or she will allocate time and resources to learn about your homebuying goals and ensure you can purchase a great residence at a budget-friendly price.
Also, a real estate agent will help you streamline your house search. This housing market professional will set up home showings and keep you up to date about open house events. And when you find your ideal home, a real estate agent will make it easy to submit a competitive offer to purchase this residence.
Take the guesswork out of the homebuying journey – work with a real estate agent, and you can receive comprehensive guidance as you pursue your dream home.
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