FAQs about rent-to-own contracts in Salt Lake City
For those interested in Salt Lake City real estate who may not be qualified for a traditional mortgage, a rent-to-own agreement may help. These agreements can benefit both buyers and sellers, in the right situation. In order to understand if this is your best bet for selling or buying a home in Salt Lake City, you must first understand what these agreements entail.
What Is a Rent-to-Own Agreement?
In a rent-to-own agreement, those who are interested in buying a home in Salt Lake City will pay a monthly rent to a property's owner. The agreement states that a portion of the rent agreement will go towards the future home purchase. The agreement will also outline a purchase price and down payment amount. Finally, it will state the date by which the purchase will need to be made.
Rent-to-own agreements also require an "option fee" from the buyer. The option fee is a set amount of money the buyer pays the seller at the beginning of the contract. When the contract is up, that option fee is used as a portion of the down payment on the property.
Although each individual rent-to-own agreement will vary to some degree, here is an example of what to expect when you enter into type of arrangement: If a seller has a property worth $200,000, and is making a $900 mortgage payment each month, the typical rent on a home in this price range would be $1,000. The seller may offer a rent-to-own agreement to an interested buyer with a rent price of $1,200 and a $10,000 option fee. The extra $200 is a rent credit the buyer gets if they decide to purchase at the end of the lease. If the lease is three years, the buyer will have $7,200 in rent credits plus the $10,000 option fee to use as a down payment, giving him a $17,200 down payment on his mortgage.
When Do Buyers Benefit?
Those looking at buying a home in Salt Lake City must have a down payment in order to get a conventional mortgage. The rent-to-own agreement allows them to rent Salt Lake City real estate with the intention to buy it, giving them time to save for a down payment while still enjoying the benefits of the house.
Some people who are interested in buying a home in Salt Lake City, but are unfamiliar with the various neighborhoods in the area, may want to scope out the neighborhood before making a commitment. A rent-to-own agreement gives you the option of living in the neighborhood without the full obligation of owning a home.
Finally, a rent-to-own agreement may work well for buyers whose credit is not high enough to earn them an interest rate that they can afford. They will take on the interest rate of the original buyer, until the time when they revert to ownership of the property. This may give them time to improve their credit.
When Do Sellers Benefit?
Rent-to-own agreements are beneficial to sellers who are holding on to Orange County real estate that they otherwise cannot sell. For instance, someone who is upside down in a mortgage because of dropping home values over recent years may not be able to sell the property. Also, someone who owns property in an area that appeals only to lower income buyers who may not be able to get a conventional mortgage may struggle to find a qualified buyer.
In these instances, a rent-to-own agreement will cover the mortgage payments, ensure that the house is occupied and allow the seller to move on. Yet, because the renter is looking to purchase the property, some of the risks of renting, such as renters who do not take care of the property, are removed. In theory, rent-to-own renters are going to have more pride of ownership over the property, because it will eventually be theirs.