There is good and bad news in this present real estate market. First, experts are declaring that now is the time to purchase a home, which is great news for many Americans–
Now is the time to buy, because rates are still low and housing prices have recovered, but are still affordable in most locations. However, inventory is low and many face competition for attractive priced homes, especially in the first-time buyer segment of the market.
Even though the time is right, if you are not in position to purchase right now, there is a better way to get in position.
Rent to Own!
There are still sellers who cannot sell their homes and would entertain a serious offer that includes a one or two-year period of renting before the home purchase is consummated. The advantage to sellers is obvious. If the home is presently vacant or they would like to move out to purchase another home, they can do so with the confidence of knowing that there will be cash flow coming from their property.
From the purchaser’s point of view, there are plenty of advantages in selecting this option as well. First, you can lock in today’s prices even if you close one or two years from now when the market may be higher. The purchase price on a “rent to own” is typically set at the time of the sales contract, not when closing takes place. This gives the purchaser a big advantage from a timing perspective. It does not mean that negotiations will be easy and this is why you should be represented by a Realtor who is experienced in such complex transactions.
Second, the time period from sales contract to closing will give you time to get your finances in order. This may mean saving for a down payment. Note that most underwriting guidelines do not allow a credit for rental payments towards the down payment except for any portion of the rent that is “above market.” Many purchasers negotiate a seller credit towards closing costs as part of the contract, but every transaction will vary in this regard. Again, this is a reason to be represented by experts within this process.
Putting your finances in order may also mean increasing your credit score during the rental period. Though you may not be given credit for your rent payments towards the cash necessary for closing, on-time rental payments will have a positive effect on your credit record. Make sure you keep a record of all rental payments, including copies of cancelled checks. Also, you may have to spend time clearing up mistakes on your credit record in addition to establishing good credit patterns.
A word of caution here. Just because you are given time to put your finances in order, you must still take the task extremely seriously. Set up a budget with a financial advisor and work with a credit score improvement specialist. If you fail to consummate the closing during the allowable time period, you are likely to forfeit your escrow deposit and the seller will be able to put the home back on the market.
The advantages are many and the opportunity is golden right now. There are many reasons to consider this option if you can’t purchase presently. We suggest you find an experienced loan officer and real estate agent team so you will understand the options and be able to put together a transaction that will put you in the right position.
