Being smart about your agreement and protecting yourself is one of the keys to success when considering a Rent to Own agreement. Like any purchase that involves considerable amounts of money changing hands, there is always space for bad folks to try and rip off the unprepared. There are a few well-known scams that are unique to RTO agreements and this article will highlight the steps you can take to protect yourself from them. Taking precautions can save you money and trouble in the long term.
1. Educate Yourself on Rent to Own:
Problem: You enter a Rent to Own agreement unsure of how to craft a safe and beneficial agreement or your ability to get into good financial standing before the completion of the lease.
Solution: Be sure that you are 100% ready to begin a Rent to Own agreement and speak with an expert first. Many of the people who are dissatisfied with the result of their Rent to Own experience are people who came into it without all the necessary preperation and tools in order.
2. Research The Seller and The Property:
Problem: Your seller is a Rent to Own scam artist, trying to sell you a foreclosed house.
Solution: Thoroughly researching both the seller and the property is one of the most important things you have to do when leasing a home for ownership.
- SELLER: Keep an eye out for public records listing illegal activity, a history of liens and foreclosures, and other complaints.
- SELLER: Observe if the seller has an agreeable personality and is one you can trust to keep his end of the bargain. If your gut tells you not to trust the seller, listen to your gut. Consider asking the neighbors to find out more about his local reputation.
- PROPERTY: Researching the title history of the property or hiring a private title insurance firm to investigate the property is also worth considering.
- PROPERTY: Do a home inspection before signing anything. This is a good way to assess whether the purchase price is fair or not.
Above all and most importantly, develop an airtight lease agreement and have someone who knows their stuff look it over. You’re making a major investment, and having a real estate lawyer take a look at your agreement can be the difference between a happy homeowner and heartache. While unjust, dishonest things like this can occur, they are rare and can be curtailed with a detailed understanding of the contract and agreement.
3. Fix Your Credit:
Problem: You are unable to get a mortgage loan at the end of the lease.
Solution: This is a common occurrence and we cannot stress this enough – For individuals who are unable to secure a mortgage right now because of a credit score or substantial debt, it is very important that you make the steps necessary to remove those barriers before the end of the lease agreement. Be in touch with a mortgage broker to monitor your ability to qualify for a home loan even before the end of the lease.
In order to transfer ownership of the property, you need to acquire a mortgage loan, and individuals who do not get themselves in good financial standing before the end of the lease risk losing their deposit and investment in the home (as a rule, these items are non-refundable, per the lease agreement). Because of this, we recommend consulting with Rent to Own specialists and considering credit improvement services to make sure you have the tools and knowledge necessary to undertake this process.
4. Walking Away:
Problem: You decide you don’t want the house after all.
Solution: The rent credit collected is non-refundable in most Rent to Own lease agreements. If you walk away from the property, you will likely be walking away from the deposit you’ve collected as well.
5. Put Deposit in Escrow:
Problem: You don’t trust your seller with holding the rent credit.
Solution: For people who are afraid of having their deposit taken by scammers, putting the amount collected with rent towards a down payment in an escrow is a more secure way to save. An escrow is a third party that holds funds on behalf of the buyer and seller, releasing the funds at the end of the obligation. Always pay your rent and rent credit with separate checks, so that there is a paper trail for the bank or investment company to determine the down payment amount.
6. Home Prices Fall:
Problem: After you lock the selling price in your lease agreement, the value of the property drops.
Solution: This issue is not exclusive to Rent to Own homes, but is a risk you take buying property of any variety. A good number of foreclosures nowadays come from people who owe more on their home than it’s worth, and decide to walk away from the property (taking a hit to their financial standing, rather than paying more than something is worth). One of the benefits of renting to own is that you have the opportunity to walk away from the property at the end of the lease term, forfeiting the rent credit but walking away from a long term financial loss.
Rent to Own may come with many potential dangers but once you’re well-aware of all the details you need to take care of, protected yourself from the risks and held up well with fixing your credit and obtaining a home loan in the end, leasing to own a home can be a very rewarding and less painful experience compared to buying a home outright.