Last Updated on March 5, 2023 by asifa
A majority of people believe that owning a home is the ultimate goal after having a stable source of income. You will usually encounter two options when searching for a home, either rent it or purchase it. More often, people living in cities rush into home ownership without doing enough planning. Nevertheless, some people tend to remain in rental flats while they wait for the ideal moment to finally purchase their own home. Both rental and owned homes have their own set of advantages and disadvantages, and making a decision for this perplexing situation often depends on one’s financial condition. Learn to know about how does rent to own work.
Consider a situation where people don’t have enough money to do a big down payment for a new house, or their low credit score prevents them from getting a mortgage. The feasible option to get home ownership in situations is a rent to own work agreement. This option gives you a chance to rent a house for a predetermined period of time with the opportunity to purchase it prior to lease expiry. However, you need to have a clear understanding of how rent to own work home works before embarking on such an option. People use the web as the first step to finding out about anything, whether they are seeking information on office for rent in Dubai or identifying the market price of any property in a given location. So, read this article to understand how the rent to own work property can work in your favor.
Rent to own process explained
A rent-to-own arrangement usually involves a proper legal contract that must be signed by both the tenant and the property owner. Both parties come up with an agreed-upon purchase price of the property after doing the negotiations. More often, the sale price mentioned in the agreement is higher than the property’s current price, as it takes into account the expected rise in value in the future. Now, regardless of the property’s actual market value, the renter may purchase the property at the agreed price at a later date.
For the tenant, an ‘option fee’ is also included, which is often between 1% to 5% of the purchase price (however, it is negotiable) and is paid beforehand. It is a non-refundable amount that allows tenants an option to purchase the house as per the agreement. If the tenant later decides to buy the house, this option fee will be deducted from the selling price. Now, what about the monthly rent? Is it different from traditional rental agreements? Well, yes. The monthly rental sum is commonly higher than the real rent, and this extra money is subtracted from the final purchase consideration, lowering the total cost of buying the house. You can consider this extra amount as a way to put money aside for a down payment.
The rent-to-own agreement is typically mode for one to three years. When the contract expires, the tenant needs to get a mortgage just like any other property buyer in order to pay the seller in full. Try to identify the best mortgage lender and the type of mortgage that works for you, and submit an application. Your way to homeownership will then become easier.
How is rent-to-own home beneficial for me?
Now that you know the details regarding a rent-to-own agreement, you must be wondering how it would benefit you. Developing equity over a period of time simply by paying a little bit extra every month is a major benefit of rent-to-own properties. It can lessen your financial load as you won’t have to work as hard to save money. The time frame of one to three years is usually enough for renters to improve their credit scores and make plans for the money needed to buy the property. Moreover, the tenants have a good chance of evaluating their living situation during the trial time so as to decide whether the property is worth buying or not.
If this rent-to-own agreement falls in your interests, it is better to hire a knowledgeable real estate attorney to get a better grasp of your rights and obligations in such a contract. Before signing anything, get the house examined, confirm that the property taxes are current, whether you will be in charge of maintenance and repair costs, and do the necessary research about the seller. You will then end up getting a good deal for your desired property.
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