Renting to Own - How Some Common Mistakes Can Derail Your Dream
Posted by: real estate / Category: Leasing RentingOver the past 18 months, we’ve seen a marked increase in the number of clients who are seeking Leases with an Option to purchase the property they are renting after a specified period of time. On the surface this appears to have the potential to be a WIN WIN for all parties to a transaction.
Homeowners who are unable to sell their homes have often welcomed the opportunity to have some income from a property while waiting for the market to rebound. For some potential home buyers, this arrangement afforded the opportunity to improve their credit scores and in some cases have a portion of their rent accrue towards a down payment when the option was eventually exercised.
However, there are some potential risks that home buyers should be aware of when considering if this type of situation is appropriate for any home they intend to eventually purchase.
Here are some things that buyers should consider when considering a Lease to Purchase Option.
1. Make Sure You Check the Title Work
While it is true that you are not purchasing the home just yet, a title search can bring to your attention some issues which may affect your ability to purchase the home in the future. Here are some of them:
- Multiple Mortgages against the property which may inflate the amount needed to purchase the property
- Mechanics Liens for work that has been done by contractors but not paid for. This is particularly important if you are purchasing brand new construction, but may also apply to older homes too.
- Tax Liens: If taxes are owed on the property, they have to be paid by someone. If the owner is in default, you may have to pay these liens. Don’t be caught off guard…check!
- IRS Liens: Once again, this type of lien can be assessed against a person’s residence. Checking the title work will usually reveal if a lien has been filed by the IRS.
2. Read the Legal News
If you’re paying rent on a home you intend to purchase, it is a shock to be informed that the property is in foreclosure because the owner has not paid the mortgage company. I have had buyers call my office in near panic when they found a foreclosure notice posted on their door. If the home that you are renting is foreclosed upon, you may need to contact an attorney to explore your options.
3. Ask to Examine the Underlying Mortgage
For some buyers, the ability to have a land contract rather than a simple lease with option to purchase is preferable. Be careful. Most mortgages today do NOT allow for land contracts. If a land contract is put in place, it can trigger what is know as the ‘due on sale’ clause.
In this case, the lender may call in the entire mortgage within a short period of time, such as within 30 days. Don’t place yourself in a situation which could leave you out on the street because you inadvertently participated in an illegal transaction.
4. Inquire about the Value of the Equity
A new ruling just handed down over the past week requires home owners who are renting their homes so they can purchase another one, to have 25-30% equity stake in their current home or be able to qualify for the New Mortgage with both mortgage payments. If you’re buying a home in which the seller’s intention is to move, make sure that they can afford to. If they can’t guess who won’t have a roof over their heads?
Taking the time to investigate the items covered above can save potential buyers the agony of watching their investment evaporate into thin air. Hiring a competent professional to assist with technical details can save you money and grief. Renting to own can make sense, but only if it is done in the right way.
Lola Audu is a Real Estate Broker & Trainer for Audu Real Estate in Grand Rapids, Michigan. In addition to assisting clients and consulting in the area of residential real estate, Lola writes and teaches inspirational courses to individuals and groups within the Greater Grand Rapids community.
Lola_Audu
Last 5 posts in Leasing Renting
- Things to Remember When Viewing a Home - November 28th, 2008
- Roommate Disputes - A 5 Step Guide to Solving Housework Disagreements - November 28th, 2008
- Home Rentals Have Become the Norm in the Real Estate Market - November 28th, 2008
- Trends in Argentina Real Estate - November 28th, 2008
- Winter Vacation in Aspen - November 28th, 2008
When buying a new construction condo in Ontario, the Tarion Warranty Corporation provides protection to buyers under the New Home Warranty Program. Membership of this program is mandatory for new construction builders by offering protection to buyers of new construction projects. Such protection includes: deposits, defects in the workmanship and materials and protection issues involving delayed closings and occupancies.
The program covers buyers for a number of items however the most important especially in this market is a deposit guarantee. With news about new construction condo projects not moving forward, it is a reassuring to know that the buyer is covered… Continue reading
Many homebuyers say they are waiting to find the right home before getting pre-approved with a lender, and I let them know that is a bad idea. Everyone should get pre-approved before starting to look for a home, because it helps narrow down their search into homes they can afford, helps their negotiating ability, and helps them find the most home for their money.
A good faith estimate from a lender can make a big difference in negotiating an offer because it helps in writing that offer. If you know how much the closing costs and prepaid items will be, then… Continue reading
The Weekly Homebuyer’s List in the Denver Post catalogs residential real estate sales in Colorado. The Homebuyer’s List for the week of May 24th totaled only 62 sales for all of Douglas County, CO. The low number of sales may not surprise many in the current market, but a closer examination of the problem reveals a strange disparity in housing prices. It may be easier and a little more fun to think of today’s market as a Monopoly game.
** The most expensive property conveyed last week in Douglas County, CO was for $1,050,000. That would be Boardwalk in Monopoly terms… Continue reading
If you’re getting ready to buy a new home then this article can save you tens of thousands of dollars in interest.
Did you know that the government will give you over $15,000 in order to make it down payment on a new home? Did you also know that if you need money for home repairs the government will give you money to repair your home? Did you also know that if you have a business that you would like to start the government will give you up to $100,000 to work from home?
The government gets money from for major corporations… Continue reading
Related posts
Tags: Buying a Home, Foreclosure, Lease, mortgage, mortgages