To Buy or Not To Buy

By Beacon Staff

Deciding whether to make the investment in home ownership is a process that involves careful consideration and deliberation. Ever-escalating real estate costs made the American dream of owning a home unattainable for some. With the market correction and historically low interest rates, more people began looking at purchasing as the option for their family. Although the buying climate has become more attractive, there are still variables that might influence whether or not home ownership can be achieved. Lending options and down payment requirements should be explored with a focus on what makes the best financial sense for a family budget.

People who are struggling to get mortgages are finding comfort in a growing trend: lease-to-own options. This is a real estate contract that allows renters to lease the property and, at the end of their lease, they have the option to buy the home.

Although often tailored to accommodate both buyer and seller, all lease-options work about the same. The renter agrees to lease the house for a pre-determined amount of time. An up-front consideration fee with or without an elevated monthly rent may be required, the portion over the ordinary rent then goes into a account that could later be used as a down payment. The sellers offer the buyers (renters) the opportunity to lock in the price when the contract is signed, with the option to purchase at that price within a certain time frame.

Many hopeful buyers are finding the rent-to-own option creates an opportunity to establish or repair their credit while positioning them for homeownership. It’s a win-win situation. Sellers find that their properties can now offer cash flow that in turn allows them to fulfill their desire to move onto the next chapter of their lives.

The concept, while not new, is gaining momentum. There are a number of reasons buyers are finding this option appealing and it isn’t just because of credit concerns. Some buyers are not sure if they’re ready to own a home and to take on all the responsibilities and extra costs that go with that. A rent-to-own contract gives the buyers a chance to try homeownership and the advantage of not purchasing outright in the event that they discover ownership is not for them. Individual sellers in the housing resale market are considering this method to help get their homes sold and so, too, are developers who have found this to be an attractive way to help sell any surplus of properties they may have that are currently vacant.

This less-than-conventional method of home ownership can be an attractive way to calculate the benefits of an individual property while enjoying living in the actual home. If you are in the market to buy, and enter into a lease-to-own contract, as the potential buyer, and for a predetermined period of time, you are the only one who has the option to purchase the property. Typically a portion of the rent would go toward building equity and, if the home is purchased, would be applied toward the down payment. Usually the property can be purchased at any time during the contract. The real estate market will fluctuate during the contract’s time frame. In an appreciating market, you may have locked into a lower price if the home goes up in value, cementing your equity position. However, the reverse is true as well. You could end up paying more for the home later on if has depreciated during the time frame of the contract.

There are some obvious advantages for a seller to consider this type of arrangement. There is the immediate cash flow from the tenant and the opportunity to sell your property later on. In a lease to-own contract, for whatever reason, if the tenant/buyer doesn’t buy your property, you would keep the upfront fee and have all of the past revenue from the rental. There is an increase in the number of potential buyers to market your home to because you would offer your property to both traditional buyers and also renters or investors. You will likely get a high-quality tenant who will take great care of the home as you have entered into a partnership and they may want to buy the home in the future. Since you own the home, you retain tax-shelter benefits while you have tenants in your home who are working toward buying the property.

Whether by traditional or less conventional methods of home ownership, fulfilling the American dream can be achieved. Carefully understanding and weighing the options to purchase a home is the first and most important step.

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