It requires both a prudent buyer and a trustworthy seller to make a successful rent-to-own arrangement and relationship. Although the agreement can be the perfect solution for a prospective home buyer who is looking for an alternative way into the housing market, there are some inherent risks that may arise.
The chance to own your home can put stars in your eyes. Refer to this check list if those stars are hindering your ability to see pitfalls in the deal that could cost you money and grief.
Before you sign the contract on a rent-to-own agreement, you should be aware of these 6 tips:
- Make sure that you can actually qualify for a mortgage loan: Do not wait until the lease period is up and decide to buy. Talk to a qualified mortgage broker first.
- Make sure you research the market: Before you decide the price on the house you want to lease your house for, compare recent sales in the neighborhood and form a solid idea of whether or not you can expect nearby houses to hold their value.
- Get a home inspection: This will determine if any repairs are needed or any major structural issues may be present. Negotiate a reduced price that reflects the cost of making those repairs and what the home may actually be worth if there are any other damages.
- Get a condition of title report: Here, you are looking for an indication that the seller has owned the house long enough to have built up equity in the property.
- Check the seller’s credit report: Your interest in the owner’s financial stability is imperative. If the seller defaults on his mortgage while you are renting, he could lose the house to foreclosure. This would in turn rob you of your chance to buy the house and lose the money you invested in the arrangement. Be sure to keep a look out for these signs of trouble: large debt, slow payment on debts, pending divorce, tax judgements or lawsuits.
- Make sure the rent-to-own agreement spells out responsibility for maintenance and repairs while you are renting: Permission to make improvements also should be specified and made clear to both parties.