You may have too much debt or your credit scores are too low. Whichever the reason, you cannot qualify for a mortgage loan. Although it is not possible to buy your dream house at the moment, there is hope. You can enter into a rent-to-own contract and start living in the house immediately on a rent basis, and then buy it later. However, you should be a keen buyer so that you do not lose money.
1. How does the final selling price and monthly rent relate?
In most rent-to-own agreements, the buyer pays a bit more in rent every month. The extra cash goes into reducing the final sale price for the house that is agreed upon by the buyer and seller. After a pre-determined number of years pass, you will be allowed to purchase the home at the agreed sale price lowered by the extra amount you paid each month. If you are not sure that you will be able to get mortgage after the rental period ends, go for a company that do not include an extra charge in the rent towards lowering the sales price of the house.
2. Know the timeline
At the start of the rent-to-own process, the owner and the buyer sign a contract stating what the final sales price will be after the rental period. The agreement will also list the period that the buyer will rent the home before they make a decision on whether to buy the house or not. The document will also state the rent payable per month.
3. Understand terms of the “option premium”
After signing the contract, the buyer is required to pay the option premium. The money gives you the right to buy the house after the rental period is over. However, understand that the premium is nonrefundable, even if you choose not to buy the home. The option premium is usually about five percent of the home’s final sales price.