Tag Archives: property

Rent to Own a Home

You may be renting a home right now and thinking that you would like to own your own home someday. Many people choose homeownership for the permanency and security it provides for themselves and their loved ones. Homeownership offers the owner a number of personal and financial benefits like having pride in owning a home and income tax breaks. Besides, homeownership is often times a sound investment. For whatever reason, some people continue to rent despite the advantages of owning a home. Maybe they don’t have enough money for a down payment, or maybe they don’t qualify for a mortgage at the moment. Maybe they don’t understand homeownership and the idea intimidates them, or maybe they just haven’t decided to make the commitment. Well, did you know that you can rent to own a home? If any of the “maybe’s” above sound like you, then a rent-to-own home may be a good choice for you.

When a homeowner lists their property as a rent-to-own property and accepts an offer from a prospective tenant, they enter an agreement. In this agreement, the homeowner, who is now the landlord, and the tenant agree on leasing terms which include and are not limited to the duration of the lease and monthly payments. At this time, the homeowner takes the property off the market and the tenant pays an option consideration as compensation. The tenant has the option to purchase the property anytime during the lease or at the end of the lease depending on the agreement. The homeowner may also include the purchase price or pricing conditions in the agreement.

While you’re renting to own your property, you have time to build your credit score so that you may qualify for a mortgage loan. Per the agreement, a portion of the rent paid may be allocated to the purchase price of the home. Unlike renting without the option to purchase, your rent money can become investment money. Nevertheless, you could lose your investment if you cannot secure a mortgage loan or neglect to fulfill the terms of the agreement.

In the real estate industry, this rent-to-own option is referred to as a lease purchase and sometimes a lease option. There are subtle differences between the two, so be sure that you fully understand the type of property you’re considering and the terms of the agreement. Remember that this is your investment, so feel free to negotiate!

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Real Estate Glossary:

Maturity– The date on which the principal balance or amount of a financial/debt instrument becomes due to be paid and payable. Examples of financial instruments that have a maturity date are:

-Loans

-Bonds

-Notes

-Acceptance bonds

-Drafts

The maturity date informs the investor/lender of how long interest payments will be received and at what date the principal is expected to be paid in full.

For homebuyers, when you take out a mortgage loan you’re responsible to pay your investor/lender an assured amount of money every month for an agreed period of time. After the full amount is paid back as promised, the loan matures and the interest payments discontinue. When the maturity date is reached, the principal is paid back in full and the debt is completely satisfied, your lender will no longer have a claim on your property that you now own.

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How do Real Estate Agents get paid?

The short answer is that Real Estate Agents get paid a commission when the deal is sealed; they get paid after a property transaction is complete. You will almost always hear this process being referred to as a closing.

A real estate transaction typically involves two different agents. Let’s look at the two types of Real Estate Agents and how each of them is paid.

1. One agent is the Listing Agent/Broker:

For property owners wanting to sell their home, a listing agent is the most essential. This agent will come into an agreement with a property owner to represent them in the sale of their property. The agent has several key responsibilities to the property owner which he/she must accomplish in order to effectively sell the property. The entire real estate commission is being compensated by the seller. Remember, a real estate transaction can be negotiated in numerous ways. This means that the buyer could even end up paying some or all of the sales commission.

2. The other agent will be the Buyer’s Agent, also referred to as the Selling Agent:

A buyer’s agent is required to call attention to the buyer, any flaws they realize or identify about involving the property. However, a buyer can request that the home have an inspection by a licensed home inspector. If it’s written in as part of the offer, seller will pay for the inspection. The agent writing up the offer will assist you with that. Also the seller can check with neighbors regarding the history of the home; sometimes certain things aren’t disclosed, but may be required bylaw. However, they are also paid by commission.

Commission fees vary from state to state and can fall anywhere from 5%-10% of the sale price. The agents may negotiate these fees which are shared between the two of them.

Now, I hope this gives you a better understanding of how your agent is paid when you’re buying or selling your home.

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Filed under Information for Buyers, Information for Investors, Information for Sellers, Real Estate