Things You'll Need:
- Real Estate Attorney
- Knowledgeable Real Estate Agent
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Step 1
First determine if the rent-to-own option is right for your situation. Rent to own plans are designed to take the home off the market for the seller and give the buyer a "payment" plan for eventually purchasing. In a Rent-to-own situation, a tenant (or prospective buyer)enters into an agreement to pay rent for a property for a specified period of time. The tenant/purchaser pays an agreed upon amount over the normal rent amount that will be used towards a down payment on the home at the end of the lease agreement. This is usually a win-win situation for both parties involved. The owner is able to generate income from the property to pay mortgage etc. The buyer is able to find a suitable place to live and pay money towards a down payment while they are working on their credit or securing a home loan.
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Step 2
If you house is on the market, make sure that your real estate agent indicates in the listings that the house is available for rent to own as well as sale. With the real estate market being in such a crunch, there are an abundance of renters seeking homes. While, many of these renters may have credit challenges, some are closer to qualifying for a loan than they think. If given the opportunity to purchase property, renters will bite. But they must be given the opportunity and it must be mutually beneficial as well as realistic.
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Step 3
Determine the market value of the home and at what price you would like to sell the home. Have an appraisal done on the home or have your realtor to run a CMA (Comparative market analysis) to give you a good idea of how your home shoud be priced.
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Step 4
Determine how much rent you will need to pay the mortgage and other expense (ONLY) of the property you are thinking of offering in a rent to own situation.
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Step 5
Calculate at least 5% of the purchase price of the home. Most renters will be first time home buyers who may qualify for FHA loans. If they do qualify for an FHA loan they will be required to make at least a 3% downpayment. However, just to be on the safe side,be prepared with a calculation range from 3-5%. This amount will be the amount that will be charged over the cost of rent to go towards the buyer downpayment.
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Step 6
Once you receive an offer on your home, the real estate agent should write up the agreement to include both the rental price and the monthly amount of rent that will go towards the downpayment. Example: Total Rent amount $1,400 a month with $200 a month going towards downpayment at the end of the lease. Set up an escrow or similiar account to place the monthly downpayment installments.
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Step 7
Make sure that you, your agent or attorney have taken the neccesary step to be sure your renters are seriously working towards a loan program. Do they have a pre-qualification letter from a lender? Are they involced in any governement or similar programs that have them working towards homeownership? Get written documentation of thier participation.
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Step 8
Be sure to have TWO agreements. Have a lease/rental agreement and a purchase agreement. The price sale price that is offered at the time of the agreement will be the sale priceMost importantly, if after the lease on the property is up and your renters decide they donot want to purchase, you can keep the money that went towards thier downpayment costs. Be sure this outlined in the ppurchase and lease agreements.
Comments
etm1109 said
on 1/7/2009 Good advice.
SimplyCuttings said
on 12/28/2008 I have a rental home and am thinking about doing this. Thanks for the great info.