5 Warning Signs Of A Rent To Own Disaster
Your Seller Does Not Check Your Credit
If you have credit issues it may seem like a relief that you have finally found
someone that will sell you a home without a credit check. Nothing could be
further from the truth! How serious can a seller be about actually selling a house if they don’t even
know if you will qualify for a loan at the end of the lease period? How do they
know how long it will take you to clean up any credit issues? How do they know
how long to make your lease period? The truth is that a seller that does not
check your credit just doesn't’t care if you can qualify to purchase the home or not.
Watch out for this one.
Your Seller Does Not Actually Own The Home
Yes, believe it or not there are people that try to lease a home and then lease it
out for a monthly profit. They also have an option to purchase the home but at a
lesser price than your option. This is commonly known as a “sandwich lease”.
Avoid this situation at all costs.
Your Seller Asks For A Large Option Fee
3 to 5% is standard as an option fee. If you are purchasing a higher priced home
you may even want to limit this to a lower percentage. Remember that you do not
get any credit or refund of the Option Fee. Unusually high option fees can signal
that the seller cares more about the fee than they do about your purchase.
Your Option Is Tied To Your Lease
Always ask for separate agreements. One of the most common Rent To Own
scams involves the investor that purchases a home and sells it on a Rent To
Own basis at an unaffordable payment. Knowing that the tenant /buyer is unlikely
to be able to make the payments on time they wait until it happens and void the
entire contract. You lose your home AND the Option Fee.
Having a separate agreement for the Option Fee discourages this type of a trap.
This would prohibit the investor from selling the home on a Rent To Own basis
again until your option period was over. Note: Never commit to a lease payment
that you cannot easily afford.
Inflated Purchase Price
Because of the recent turmoil in the real estate market investors, builders, and
individuals owe more on homes than the homes are currently worth. Make sure
that the home that you choose will appraise for the selling price. You can hire an
appraiser for this or you can have a realtor do a CMA for a general idea of the
home value.
In addition don’t forget to check the title with the county records department to
determine if there are any liens against the property BEFORE you sign your
rent to own agreement.
