Creative Financing Options

Creative Financing Options
With today's rising prices it's all most people can do to​ stay afloat financially .​
So how does a​ young couple save enough money to​ break into the housing market? Sometimes you have to​ think outside of​ the box and come up with creative financing options .​
One such example is​ Lease-to-Own, or​ Rent-to-Own house purchases.
Basically, in​ this scenario, the landlord and the tenant come up with an​ agreement to​ purchase the house within a​ designated period of​ time (usually 3 years or​ less), for a​ specific price .​
An option fee of​ 1 to​ 5% of​ the price is​ credited to​ the purchase price and a​ premium is​ added to​ the rent payment to​ accumulate a​ deposit .​
If the buyer backs out of​ the purchase agreement they lose both the option fee and the rent premium .​
Typical Rent-to-Own Contract Features
The rent and home price are usually established and documented based on market value plus any negotiation between the buyer and seller .​
A rent-to-own contract will have an​ option period where the borrower can build equity while living in​ the home .​
Once the option period expires, the borrower is​ counting on successfully qualifying for a​ mortgage to​ purchase the home .​
It is​ imperative that the borrower has a​ good idea of​ their ability to​ assume a​ mortgage; speak to​ a​ lender before entering on a​ rent-to-own agreement to​ have your financial situation examined .​
You may only have to​ improve your credit rating, and this can be accomplished by making timely minimum payments any loans or​ credit cards each month .​
Often a​ lender will want to​ see that an​ amount above the market rent price has been set aside .​
This ensures that the seller is​ not providing the borrower with a​ kickback by artificially inflating the selling price .​
Usually the bank will also request an​ appraisal for this reason .​
If at​ the end of​ the option period, the buyer discovers problems with the home, it​ may be cheaper to​ walk away from the deal than purchase a​ house which may develop into a​ money pit .​
The selling price of​ the home is​ agreed upon at​ the beginning of​ the option period .​
This means that after a​ 3 year option period if​ houses prices drop the borrower may request a​ down payment based on the new value .​
For instance, a​ 5% down payment on a​ $225,000 home would be $11,250 .​
If the home drops 3% in​ value, or​ to​ $218,250, the 5% down payment from this would be $10,912 – bringing the maximum loan amount to​ 207,338 .​
You need $225,000, now you have to​ make up the difference .​
However, the price may indeed go up 3% in​ price and the seller is​ out the amount of​ the increase .​
It is​ for this reason that some contracts are drawn up with no final price quoted, just specifying the house will be sold at​ fair market value at​ the end of​ the option period .​
There are shady sellers out there who will create a​ contract with an​ easy escape clause, such as​ the right to​ evict a​ tenant with only 3 days notice .​
It is​ in​ the buyer's best interests to​ have their contract reviewed by a​ lawyer before entering into a​ binding agreement .​
Also, pay your rent on time and do not give the seller any opportunity to​ renege on the agreement.

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