Buyers do not want to be caught unawares after signing a contract on rent to own homes, which is why it is important for buyers to go over a final checklist before signing the contract. Even though homebuyers have the option to walk away from the home, walking away is not a great option, since it involves losing a substantial amount of money. Before signing the contract on the lease option home, carefully go through the following checklist ensure every aspect has been covered.
Consider Checking the Seller’s Credit Report
While sellers often check the credit report of potential homebuyers before going through with the lease option contract, homeowners often forget to check the credit report of the seller. Buyers need to avoid entering into a contract with sellers that may have substantial credit problems, such as outstanding debt, delinquent accounts or liens against the home being sold.
Homebuyers will be investing a substantial amount of money in the home. No one wants to lose their hard-earned money because the home they chose is foreclosed on before they can purchase it. To avoid scams or potentially dangerous situations, taking time to check the seller’s credit report is an important task to complete before signing the contract.
Buyers interested in rent to own homes often fail to think about the possibility that the seller could lose the property. Even checking the credit report may not clue buyers into potential problems in the future. A home may be lost by a seller in a lawsuit, due a tax judgment or in a divorce situation. Keep these risks in mind before deciding taking the final step to enter a contract on rent to own homes.
Another important task on the buyer’s checklist should be to have a home inspection done on the home. Homebuyers need to ensure everything is in order before they sign a lease option contract. A home inspection is an important part of due diligence that potential homebuyers should do before buying. The home inspection will bring to light any problems, which may affect the final price of the home. Homes can be assessed for overall value as well, which helps buyers ensure they obtain the home for a reasonable price.
Talk to a Mortgage Broker
Before going through with the contract on rent to own homes, buyers should take time to talk to a mortgage broker. This helps buyers determine where they are in the process of qualifying for a mortgage. If they are not currently qualified to get a mortgage loan, buyers have the ability to find out what changes they need to make to qualify. Buyers may find out how much time they will need to get everything in order to qualify for a good mortgage with reasonable interest rates, helping them to decide on the length of the lease period. If homebuyers are unable to attain financing within a reasonable amount of time, it may not be the right time to go through with a lease option.
Be Clear on the Type of Agreement
Some homebuyers make the mistake of entering into a “lease purchase agreement” on a home instead of a “lease option agreement.” Why does this make a difference? A “lease purchase agreement” requires the homebuyer to purchase the home at the end of the lease period.
If the home is not purchased, the buyer may face legal consequences for failure to make the purchase. A “Lease option agreement” gives buyers the option to purchase the home at any point in the lease period or at the end of that period, but they will not be penalized if they choose not to make the purchase.
Check Requirements on Repairs and Maintenance
Before signing the lease option contract, homebuyers must check the requirements noted on repairs and maintenance tasks required on the home. Some contracts may specifically note that the buyer is responsible for any repairs and maintenance on the home. Other contracts note that the seller will be responsible for maintenance and repairs. Carefully note the language and responsibilities listed in the contract before signing to avoid any misunderstandings and confusion in the future.
Condition of Title Report
Attaining a Condition of Title report should be a top priority for homebuyers before signing the contract. The Condition of Title report offers invaluable information on the home and the title, such as showing how long the seller of the home has owned the property. The longer the seller has owned the home, the more stability and equity the home should have. Information provided in the Condition of Title report also allows potential buyers to find out if the title has any liens against it, which could affect their ability to purchase the home.
At a Glance
- Always investigate the credit report of the seller;
- Consider the possibility that sellers could lose the property;
- Home inspections should be conducted before signing a contract;
- Talking to a mortgage broker is a wise course of action;
- Ensure the agreement is a “lease-option agreement” and not a “lease-purchase agreement”;
- Obtaining Condition of Title report on rent to own homes is essential.