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Both A Gift And A Curse

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This Month in Real Estate April 2012

What are the pros and cons of “Rent to Own”?

The term “Rent To Own” is used when the owner/ landlord has agreed to sell the property to the tenant for a specific price within a specified time frame. The are a couple scenarios associated with this.

Scenario 1: (Lease Purchase) The owner agrees to place a portion of your rent into an escrow account to go toward a future down payment or to reduce the purchase price of the home when you do purchase.

Scenario 2: (Lease Option) The tenant is required to pay for the option to purchase in the form of a non-refundable deposit to the owner. In the event you decide not to exercise that option or purchase you actually lose out on that money.

The best thing to do is to read the fine print and learn about all of the details of the program.

Some Pros:
1) Part of the rent paid goes toward the purchase.
2) The tenant has the exclusive or first right to purchase the property.
3) The tenant can “test” the home and area first without fully committing to buying it.
4) The tenant locks in a price today for a purchase down the road. If the property goes up in value, the appreciation gained is theirs.

Some Cons:
1) The tenant may pay a premium for the advantages of these terms. (Higher than market rent)
2) The tenant may sacrifice some or all payments/deposits/credits if they do not to buy or perform as agreed.

How good does a person’s credit have to be to purchase?

In an ideal situation a person would have to have a minimum score of 620 to purchase a home using an FHA loan.

There are some lenders who can lend on a score lower than 620 but there are other factors involved.

Your REALTOR can refer a lender to you or you can choose your own. The lender would then be responsible for qualifying you for financing.

How much is a good amount to put down on a home?

FHA loans only require a 3.5% down payment. That is 3.5% of the purchase price.

A conventional loan requires a 20% down payment.

Most first time homeowners get FHA loans.

How come some ppl say they lost their home because the mortgage went up and now they cant afford it ? can it really just go up? and why?

Those people more than likely had an Adjustable Rate Mortgage (ARM) meaning that the interest rate changed (went up) from time to time.

When the interest rate went up, the mortgage did in fact go up.

Other people may have had an interest only loan where they were only paying interest for the first year and then when it came time to the the principal too they couldn’t afford it.

A mortgage payment consists of both principal and interest. The principal is the amount you borrowed and the interest is the amount they are charging you for borrowing.

An article by Jay Papasan of Keller Williams Realty, Inc.

"The more successful you become, the more failure you’ll experience along the path."



Today’s big little affirmative truth!