Renters,
Basically, most people would rather own a home than rent one.., but most simply
cannot come up with the needed credit scores and/or down payment needed. We will
discuss the most common two programs that we offer daily.
Disclosure: Please be aware that the Home
Owners are our clients and we at BCI Properties, LLC have a fiduciary obligation
to look out for their best interests. We will always be honest in all our
dealings, however you have no representation legally by us. You should have all
legal, lease, rental, purchase and sale agreements etc reviewed by an Attorney.
We can recommend several in the area if you wish.
What is Leasing or Renting a home with Option to buy?
A Lease or rent to own home is where you lease a
home, but you also control the property by having the option to purchase it at
any time during your lease period. The owner nor their Agent can not market the home for sale,
since he or she is bound by their agreement to sell the home to you at a
pre-determined price that you agree on before you move in. Always make sure
that the Property Manager or Seller/owner files your option to buy agreement
with the county recorders office that the home is in. This will protect you
further in most cases.
Two Optional Rent-to-Own Plans
A. Rent to Own Basic Option - A simple
rental agreement with a basic statement in it or attached as an Addendum,
which allows you the "right of first refusal" or "option to buy" the home for
a pre-set amount of time and on some rentals we can negotiate for a pre-set
price. Options are set for the term of the lease or one year. No extra money
down by the renter, just pay normal rent. You must come up with what ever is
required by your lender for a down payment and closing costs in the end of
course. Ben Leske at City Bank can help with this process and advice in terms
of what to do next. See logo and phone number to the left.
B. Full Rent with Option to Buy Plan -
There is two parts to such an agreement: the first is
a standard lease that spells out the monthly rent, and other standard lease
terms. The second part is a Real Estate Purchase Option. This is a one way agreement
that binds the Seller to sell to you at an agreed upon price. The Seller/owner
has to sell your home to you when you want to buy it (during the option term),
but you don't have to buy if you don't want to. That is why it is a one way
agreement.
The lease option has a fixed period after which it
expires. The term is typically one to two years and is negotiated between you
and the Property Manager on behalf of the Seller/owner. To secure the option, a down payment is necessary. This is
known as "Option Consideration". This consideration is compensation to the
owner for taking the property off the market and to guarantee a future price
to you. The Lease to own option consideration will be applied as a reduction
to the purchase price at the time you decide to buy. It can also be counted as
a down payment instead in order to help you qualify for a loan. Your Property
Manager BCI Properties, LLC can help you with finding a suitable home loan
lender.
If you decide not to purchase the property, the
option consideration is not refunded. It is kept as compensation by the owner
for guaranteeing the price to you for a fixed period of time. Your intent
should therefore always be to buy the home once you enter into a rent to own
agreement. The option consideration is typically 3% to 10% of the agreed upon
purchase price and is negotiated up front.
You should always ask for a rent credit. This is
beneficial for both the Seller and the Tenant/Buyer. You agree to pay slightly
higher than market rent, in exchange for receiving a percentage credit to the
purchase price for every rent payment made on time. Eg. Let's say market rent
for a specific home is $1,200. You agree to pay $1,400 a month in rent, but in
return you receive a $400 a month rent credit if you paid on time. If you
leased for one year, you would have accumulated $400x12 = $4,800 in rent
credits, which will reduce your purchase price even further. In other words, a
portion of your rent is saved towards the purchase of your instead of losing
the entire amount to the landlord. However this may not be part of every lease
and you must ask for this concession, the owner may or may not agree to that
provision.
1.
An option fee, which is generally 3-10% of
the home purchase price, is negotiable and is paid to secure the Option To Purchase
Agreement. 100% of the option fee is applied toward the purchase price as a
credit when you purchase the home at the end of the lease term. In addition,
any amounts you elect to pay in excess of the base monthly lease/rent are also
applied 100% toward the purchase price. This enables you to build equity
ownership in your home.
Requirements include:
Along with a Lease/rental contract we will need a written sales agreement to
be executed and fulfilled within
12 months, but you may negotiate in many cases for up to 36 months on a
Lease/Rent to Purchase Contract... and you may be able to "Lock in" the
price while the original owner will remain on the deed until you have taken your
option to buy, as you are still renting or Leasing and only have an "Option" to
buy. You need to have:
1. A qualified job, meaning that you have been on a job at least a year and its full time or that
your co-buyer
or spouse also qualifies.
2. No evictions on your records.
3. Enough cash to pay 1st + Last months rent + deposit. Depending
on the plan chosen, deposits vary.
4. Willing to pay a $35 basic or $75 full, credit check fee.
On the good side:
A. If you are happy with your home, you can buy it at yesterdays prices
because our BCI PROPERTIES contract protected you by "Locking in" the
original sale price when we first negotiated the Lease/Purchase contract. You
paid for that privilege with your non-refundable deposit.
B. You may take your option at that time and finalize the purchase of
your new home. BCI Properties, LLC can assist you with finding a lender with
suitable rates to make it a smooth process. You should have all legal contracts
reviewed by a competent Real Estate Attorney.
C. If you have a non-refundable deposit,
it can be used as part
of your down payment. Financing a home can be tough these days and money
is tight, even good credit scores may not help when your lender requires a down
payment that you may not have, so you can Lease-to-Own with a non-refundable
deposit or you can negotiate to have a part of your monthly rent applied or
credited toward your down payment. When you exercise your
option to purchase however after a year or two, your lender may tell you
that your loan could possibly be treated as a refinance using the appraised
value of the home. Ask your lender today.
On the bad side. What can go wrong?
A. You may not be able to get your credit score to come up within 12 months
and the owner may not want to re-negotiate your Lease/Contract or may want a lot
more for the rent/lease. Ask us to write into the lease contract an automatic
2nd year lease/rent if needed with no more than a 8% raise in rent... as an
example. This is not in the normal lease and it will not be available to you if
you do not ask for it. Some owners may refuse up front but many more will
cooperate.
B. You may not like the current finance rates or plans offered
to you when you are finally ready to buy and exercise your option to purchase.
Do not allow your Lease contract to expire before you decide what to do.
C. You may have poor credit, no money down... and/or no
job. There is not much we can do for someone who has all three strikes
against him/her except to encourage you to save your money, improve your credit
score by paying your bills... and/or get a job. If its just poor credit but you
can come up with the money to put down, we may be able to help. If you have good
credit but just no money down.., we can probably help. If you have no job or
source of regular documented income... well, not much we can do about that.
D. If you paid extra money down or a
non-refundable deposit and allow your rental lease to expire before you execute
a Purchase and Sale Agreement you can and probably will loose that money.
Call today for more info. More details will be listed
here later.
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