Saved Up Enough for the Down Payment? Close!
Congratulations! You found the house of your dreams, and it’s on the market. You’re faced with a great opportunity to purchase it, but you don’t have enough saved up for your down payment. You could wait a few months, while you save up the money to put a down payment on the home. But the house may have sold by then, and you would be out of luck.
What’s Your Best Option?
Ask the seller if they will consider renting to own the home. Tell them it’s a win-win situation. They will make rental income off their home (in addition to what they earn from the sale) and they’ve found a motivated buyer!
Meanwhile, you’ve locked down your dream home. You’re still paying rental payments like you were before, but you’re also saving up for the down payment with your premium payments.
Can I Buy a Rent to Own Home Early?
What if you save enough money to make a down payment, and you’re approved for a mortgage, but you’ve still got time left on your lease? You don’t want to waste money on rent payments that could be serving as mortgage payments. It's okay because you don't have to wait until the end of the lease to purchase the home.
The option itself gives you the right to buy the house at any point throughout the term. So, if you sign a 36-month option, that means you have the right to buy the house any point between when you sign the contract and 36 months from when you sign the contract.
That means when you sign your lease, plan for it to last as long as it would take for your premium payments to add up to your down payment. Your rent plus your premium payment should not exceed 30 percent of your income even if you can afford more.
If some months you can contribute a larger percentage to saving for your down payment, that’s fine! But don’t commit yourself to spending more so that you get into your home quicker. Emergencies happen and there may be times during your lease that you can’t afford to pay more than 30 percent. That’s okay as long as you haven’t signed a contract saying you will.
How Do I Close on the Property?
Closing on a rent to own home, is like any other type of home purchase, except the process isn’t as lengthy. Certain aspects were done at the beginning of your lease, instead of right before purchasing.
Normally, before closing, you check the title to be sure the seller has the right to sell the property to you at the end of the lease. And you would have the property inspected for things like termites that could ruin your investment. While, of course, these are important facets, you should have them done at the front end of your lease instead of the end. Before you invest money in the option fee and premium payments, you want to be sure you can buy the home and that it's worth buying. These steps are part of avoiding rent to own scams.
The rest is simple. Get approved for your mortgage. Go to a title company to create the transfer documents. You and the seller each sign the documents provided by the title company.