Buying a home for the first time is a daunting task. There is a lot that needs to be considered, and it has many factors that should be aligned. For example, you need to have an evident history of paying the bills in the past on time, and there should be lesser debts in your account. In this way, you should take essential steps to be eligible for getting a mortgage payment. In many cases, many people are dependent on getting a mortgage payment for getting a house. This is because house ownership is a difficult path and one needs enough savings and finances to get it.
How Does Rent to Own Work in Maryland?
In Maryland, rent to own represents the lease-purchase contract where the tenant is renting a property for a specific period and has the option to buy property from the owner before the lease runs out. Rent to own homes contract has the following details:
- The name and address of the property owner
- The name and address of the property buyer
- The legal description of the property.
- Purchase Price
- Rent term
- The amount of the monthly rent payments and fees.
- The amount of the security deposit.
- Option to purchase the property and amount.
- A guarantee for tenant for “good faith intention to purchase the property.”
Of course, except in real estate, the “rent to own” process can be as same as for the various product. For example, buyers can buy computers or any other product with a similar contract.
If you have a problem with products or real estate please read this Maryland “rent to own” pdf document.
There is, however, a different pathway as well, which requires a person to get a house and live in it by paying rent amount weekly or monthly as decided by the owner. Then, after spending the rent for quite a considerable period, you can buy the house as it approaches the deadline. This is known as a rent-to-own agreement requiring living in a home and paying rent. Then, finally exists two parts: the standard deal, which includes issues about the lease and a choice to get it bought by you.
Usually in Maryland, you need to have this requirement for “rent to own” home buying contract:
- Minimum 570 FICO Score
- Minimum annual household income of $45,000
- Minimum of $1,500 monthly rent
However, many issues need to be handled to get the house on rent; some protocols need to be followed. Therefore, in this article, we will run down the comprehensive process and see what needs to be done to ensure that you have a smooth ownership process. It would help if you did not get into the complexities of things by following some simple steps. We will look at a general summary first.
Rent to own agreement
First of all, you need to understand the concept of rent to homeownership agreement. The agreement stipulates that you can live in a property while giving the rent decided by the owner. However, when the deal is nearing its expiry, you must buy the house. It also comes with two parts or options. Firstly, there is the standard agreement that means you are given an opportunity or a choice as to whether you would like to buy the home or not. Secondly, a purchasing contract makes it mandatory for the rent giver to buy the house once the deal is over.
There are some agreements where you also have to include the amount to maintain the house or do any possible repair during the rent period yourself. This can differ in different contracts; however, many require you to manage the place when you live on rent; however, pay for it just like an owner of the house would do. As the agreement will expire, you will have to buy the house and become the owner yourself.
Rent to own Purchase price
Before you buy the house, you must know that you will pay a non-refundable fee that you have to pay once. This does not mean that you have to move in right away; however, it can also serve as a token of money that guarantees that the house will remain yours afterward. This fee or amount is also known as the option money and referred by it. You can alter or negotiate the amount according to your own needs; however, it usually ranges from one to five percent, depending on the price of purchasing.
What is the difference between the two types of lease contracts?
When looking for a rent-to-own agreement, there are two types of contracts. One is the standard agreement which is often known as the option agreement. This agreement stipulates that you should have the option of not buying the house after the deal expires. You can move away and not want the place, which is ideal depending on unforeseen changes. There is also no penalty involved in this, and you also do not have to pay any amount. The contract does not hold any condition and expires.
However, another agreement makes it mandatory for you to buy the house after its expiration. This bounds the one renting to buy the house and cannot cancel the deal. Therefore, our suggestion would be to read the contract thoroughly and decide whether you want an optional deal or a mandatory one. It is better to get the option because you can live flexibly and if the house does not suit you, you would not be bound to buy it. One should research well and know what rights you have as a house buyer. After all, you agree to live on rent for quite a significant period.
What should be the price of purchasing in the “rent to own” contract?
The price of purchasing can be altered or negotiated between two parties. Many factors typically determine this. You can see the trends of housing and market values, and when the prices are going up, the deal is usually locked in. However, some owners believe that they will look at the house’s current condition and then decide what price it holds. This is generally done when the agreement is near its expiry date. Sometimes the price is agreed to be a bit higher than the market price.
All in all, you should be aware of what the price is set at and see whether you are in the position to afford this amount. You also have the right to negotiate and bring the price down to your preference, and the owner should also have a patient hearing in this regard. Agreements are best suited when the contract is clear, and nothing is left to be decided after time has passed. Therefore, it is best to sign the contract with the complete details provided to you from the very beginning.
Amount to maintain the house
Although maintaining the house is the owner’s work, they have to pay for any repairs that need to be made. However, some agreements state that the one living in the house has to pay for the maintenance. This can include fixing tiles, looking out for sanitation issues, fixing a leaking tap, or changing the overall roof of the house. Some other tasks like maintaining cleanliness on the property are something that you can do; however, other proper fixing functions need the owner’s consent. In most cases, the owner should be the one paying for them. However, even if this is the case, you should take an insurance policy from owners to pay for any damages or accidents that can be caused unintentionally. Therefore, you should read the contract very thoroughly and even ask when something is unclear. It is best to know everything beforehand rather than leave the details for the later stage.
Property to be bought
As mentioned above, there are two types of agreements. Firstly there is a choice agreement which gives you an option to move out of the house and not buy it once the contract expires. This is much more flexible and can be adjusted to your preferences. You may think that you would want to buy the house initially; however, conditions may change by the end of the contract. For example, you may not like the house as much as you thought you did, or maybe you could not secure a good financing option. All of this must be taken into consideration. If you have the second type of agreement, the purchasing contract, then it makes you legally bound to buy the house once the deal is over. If you fail to pay for it or ask to move out of the house, there can be legal action against you. Therefore, it is a bit of a risk factor involved in getting this sort of agreement, and we would recommend you to go for the first option that can be adjusted according to the conditions. It allows for more flexibility and does not put any pressure on you. You can treat the house as any other rent option and research well in the area to make your decision.
Who should look for options of renting to home?
Rent-to-home agreements suit those who are generally not financially strong enough. This does not mean that they are not earning enough. It simply means that people may not have enough money to cover the cost of buying a home. So, having a house on rent and then thinking about buying it makes a person think about it and buy time. They can then figure out ways to save money in time until the agreement expires.
Steps in signing the contract:
Some essential steps should serve as a guideline when you are willing to sign the contract. They include the following:
1. What will be your option: Be clear whether you would like the option agreement or the purchasing agreement.
2. Hiring an agent: You should help someone experienced in the real estate business to help you make the right decisions and not fall into scams and traps. They should have negotiable solid skills as well.
3. Reading the contract thoroughly is a crucial step, and the contract should never be overlooked. This is because the contract has essential information that could be used against you in the future. For example, it has important cut-off dates, information about the rent and the fees, the choice between option agreement or purchase agreement, the responsibility of maintaining the property in between, what is meant by maintenance, and other sorts of important information.
4. Home inspection: The house you will be moving into must be researched well in terms of your preferences, including the neighborhood area. Do not just buy the home without any research, as it can cause inconvenience in the long run.
5. Who is the seller: You should know a lot about the seller and their history. This ensures that they do not have any bad reputation or are not selling their house in the form of a scam or a trap.
6. Be in contact with the seller: You should have a strong communication channel. You should communicate any details or changes directly as it helps to bring clarity.
Conclusion
This article discussed in detail the rent to a home agreement. We learned that this option is ideal for new home buyers and those who do not have a solid financial background. Under this option, the person can live in the home and pay rent monthly or weekly as set by the owner. After the agreement expires, they can decide if they want to buy the house. This is determined by the choice agreement that gives the option. If you do not believe the house after the deal expires, there is no legal violation, and you can move out. However, if the agreement states to purchase, you are now legally bound to buy the house to put a lot of penalty on you.
Whether you are taking the choice agreement or the purchasing one, you should be clear in communication and read the contract thoroughly. You may also have to pay for the maintenance of the house as well if this is written in the contract.
With the soaring prices of all the properties, this option has become ideal for helping the candidates, and new buyers get their dream house in a perfect location.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com