Tanya Tanimoto's 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.
Renting is a short-term solution to finding a place to live. It can be a good way to move into a new area and live inexpensively for a short period of time. But financially, renting doesn’t make much sense as a long-term plan.
Owning a home is a valuable asset--one that is likely to rise in value over time due to inflation and increasing land value. When you pay rent each month, your only return on investment is that you have a place to live. With home ownership, however, your mortgage payments go toward something you can sell later on.
Deciding if you’re ready to buy a house is not an easy task. Not only do you need to ensure that you’re financially prepared for homeownership, you also need to determine if it makes sense for your personal and professional life.
In this article, we’ll talk about some of the ways you can tell if it’s a good time to take the plunge into the housing market or if you should keep renting.
Where do you see yourself in five years?
Aside from being a question you’ll likely be asked at a job interview, this is also something you should ask yourself before considering buying a home. When you buy, you’re making a down payment, paying closing costs, and devoting a lot of time and energy into the process.
Initially, it typically costs more to buy than to rent. But, over time, you’ll likely end up paying less for your mortgage payments than you would for a 1-bedroom apartment. Furthermore, those costs go towards an important financial asset.
A big question you should ask yourself when deciding whether to rent or buy is how long you plan on staying in your next dwelling. Typically, if you plan on living there for over five years, it could be a good idea to buy.
To find out which makes more sense for you, try out this useful Rent vs Buy calculator.
What type of lifestyle do you want to have?
Owning a home means caring for a home. If you want to focus on your career or education, you might not have time or funds to pour into maintaining a home. It’s important to remember that home maintenance isn’t just a matter of mowing the lawn every other week. You’ll also have to be prepared to spend on hiring professionals for issues like plumbing and electricity.
Calculating whether it makes more sense to buy a home or rent an apartment can be difficult because there are a number of variables when it comes to buying a house. Closing costs, down-payment, property taxes, HOA fees, should all be figured into your calculations. On top of that, you’ll need to consider the state of the housing market, whether you can get a good interest rate, and what type of mortgage you can receive.
If you want to live in a large home and you want to do it sooner rather than later, you might want to rent and save for a longer period of time.
However, if you’re happy in a small house and don’t need lots of storage space and bedrooms, taking a small mortgage can be a good investment.
That’s a lot of variables to consider, but fortunately this calculator from the New York Times makes it easy to plug in your numbers.
- Are you in a lease or is your living situation easily changed?
- Do you need to remain in your current community or would you be willing to move?
- Do you have the time and resources necessary to make your first home purchase a success?
- Do you have a steady source of income?
- Do you know your credit history?
- Do you have a down payment ?
- Are you ready for the financial responsibilities that coincide with home ownership?