Buying a home for the first time is a daunting task. There is a lot that needs to be considered, and there are many factors that should be aligned. For example, you need to have an evident history of paying the bills in the past on time, and there should be fewer debts in your account. In this way, you should take essential steps to be eligible to make a mortgage payment. In many cases, people depend on mortgage payments to get a house. House ownership is complex, and one needs enough savings and finances to get it.
How Does Rent to Own Work in Maryland?
In Maryland, rent-to-own represents the lease-purchase contract, where the tenant rents a property for a specific period and can buy property from the owner before the lease runs out. Rent to own homes contract has the following details:
- The name and address of the property owner
- The name and address of the property buyer
- The legal description of the property.
- Purchase Price
- Rent term
- The amount of the monthly rent payments and fees.
- The amount of the security deposit.
- Option to purchase the property and amount.
- A guarantee for the tenant for “good faith intention to purchase the property.”
Of course, except in real estate, the “rent-to-own” process can be the same for various products. For example, buyers can buy computers or other products with a similar contract.
If you have a problem with products or real estate, please read this Maryland “rent to own” PDF document.
However, there is a different pathway as well, which requires a person to get a house and live in it by paying rent weekly or monthly as decided by the owner. Then, after spending the rent for quite a considerable period, you can buy the house as it approaches the deadline. This is a rent-to-own agreement requiring living in a home and paying rent. Then, two parts finally exist a standard deal, which includes issues about the lease and the choice to buy you.
Usually, in Maryland, you need to have this requirement for a “rent to own” home-buying contract:
- Minimum 570 FICO Score
- Minimum annual household income of $45,000
- Minimum of $1,500 monthly rent
However, many issues need to be handled to get the house on rent, and some protocols need to be followed. Therefore, in this article, we will run down the comprehensive process and see what needs to be done to ensure a smooth ownership process. It would help if you did not get into the complexities of things by following simple steps. We will look at a general summary first.
Rent-to-own agreement
First, you need to understand the concept of a rent-to-rent-to-homeownership agreement. The agreement stipulates that you can live on a property while paying the rent decided by the owner. However, you must buy the house when the deal is nearing its expiry. It also comes with two parts or options. Firstly, there is the standard agreement, in which you are given an opportunity or a choice as to whether you would like to buy the home. Secondly, a purchasing contract requires the rent giver to buy the house once the deal ends.
Some agreements require you to include the amount to maintain the house or do any possible repairs during the rent period yourself. This can differ between contracts; however, many require you to manage the place when you live on rent and pay for it just like an owner would. As the agreement expires, you will have to buy the house and become the owner yourself.
Rent-to-own Purchase price.
Before buying the house, you must know that you will pay a non-refundable fee, which you must pay once. This does not mean you have to move in right away; however, it can also serve as a token of money that guarantees the house will remain yours afterward. This fee or amount is also known as the option money and is referred to by it. You can alter or negotiate the amount according to your needs; however, it usually ranges from one to five percent, depending on the purchasing price.
What is the difference between the two types of lease contracts?
When looking for a rent-to-own agreement, there are two types of contracts. One is the standard agreement, often known as the option agreement. This agreement stipulates that you should have the option of not buying the house after the deal expires. You can move away and not want the place, which is ideal depending on unforeseen changes. There is also no penalty involved, and you do not have to pay any amount. The contract does not hold any condition and expires.
However, another agreement makes it mandatory for you to buy the house after its expiration. This bounds the one renting to buy the home and cannot cancel the deal. Therefore, we suggest reading the contract thoroughly and deciding whether you want an optional deal or a mandatory one. It is better to get the option because you can live flexibly, and if the house does not suit you, you would not be bound to buy it. One should do research well and know one’s rights as a house buyer. After all, you agree to live on rent for quite a significant period.
What should the purchase price be in the “rent to own” contract?
The price of purchasing can be altered or negotiated between two parties. Many factors typically determine this. You can see the trends in housing and market values, and the deal is usually locked in when the prices are going up. However, some owners believe they will look at the house’s current condition and decide its price. This is generally done when the agreement is near its expiry date. Sometimes, the price is agreed to be a bit higher than the market price.
All in all, you should be aware of what the price is set at and see whether you are in a position to afford this amount. You also have the right to negotiate and bring the price down to your preference, and the owner should also have a patient hearing in this regard. Agreements are best suited when the contract is clear and nothing is left to be decided after time has passed. Therefore, signing the contract with the complete details provided to you from the beginning is best.
Amount to maintain the house
Although maintaining the house is the owner’s work, they have to pay for any repairs that need to be made. However, some agreements state that the one living in the house has to pay for the maintenance. This can include fixing tiles, looking out for sanitation issues, fixing a leaking tap, or changing the overall roof of the house. You can do other tasks, like maintaining cleanliness on the property, but other proper fixing functions need the owner’s consent. In most cases, the owner should be the one paying for them. However, even if this is the case, you should take an insurance policy from the owners to pay for any damages or accidents that can be caused unintentionally. Therefore, you should read the contract thoroughly and even ask when something is unclear. Knowing everything beforehand is best rather than leaving the details for the later stage.
Property to be bought
As mentioned above, there are two types of agreements. Firstly, a choice agreement gives you the option to move out of the house and not buy it once the contract expires. This is much more flexible and can be adjusted to your preferences. You may think you would want to buy the house initially; however, conditions may change by the end of the contract. For example, you may not like the house as much as you thought, or you could not secure a good financing option. All of this must be taken into consideration. If you have the second type of agreement, the purchasing contract, you are legally bound to buy the house once the deal ends. If you fail to pay for it or ask to move out of the house, there can be legal action against you. Therefore, it is a risk factor involved in getting this sort of agreement, and we recommend you go for the first option that can be adjusted according to the conditions. It allows for more flexibility and does not put any pressure on you. You can treat the house as any other rent option and research the area well to decide.
Who should look for options for renting a home?
Rent-to-home agreements suit those who are generally not financially strong enough. This does not mean that they are not earning enough. It simply means that people may not have enough money to cover the cost of buying a home. So, having a house on rent and then thinking about buying it makes a person think about it and buy time. They can then figure out ways to save money in time until the agreement expires.
Steps in signing the contract:
Some essential steps should be guidelines for when you are willing to sign the contract. They include the following:
1. What will be your option? Be clear whether you would like the option agreement or the purchasing agreement.
2. Hiring an agent: You should help someone experienced in the real estate business to help you make the right decisions and not fall into scams and traps. They should have negotiable solid skills as well.
3. Reading the contract thoroughly is a crucial step and should never be overlooked. This is because the contract contains essential information that could be used against you. For example, it has essential cut-off dates, information about the rent and fees, the choice between an option agreement and a purchase agreement, the responsibility of maintaining the property in between, what is meant by maintenance, and other important information.
4. Home inspection: The house you will be moving into must be researched well, including the neighborhood area, according to your preferences. Do not just buy the home without research, as it can cause inconvenience in the long run.
5. Who is the seller? You should know a lot about the seller and their history. This ensures that they do not have a bad reputation or are not selling their house as a scam or a trap.
6. Contact the seller: You should have a strong communication channel. Communicating any details or changes directly helps to clarify.
Conclusion
This article discussed in detail the rent to a home agreement. We learned that this option is ideal for new home buyers and those who do not have a solid financial background. Under this option, the person can live in the home and pay rent monthly or weekly as the owner sets. After the agreement expires, they can decide whether to buy the house. This is determined by the choice agreement that gives the option. If you do not believe the house after the deal expires, there is no legal violation, and you can move out. However, if the agreement states to purchase, you are now legally bound to buy the house, which will put a lot of penalties on you.
Whether you are taking the choice agreement or purchasing one, you should be clear in communication and read the contract thoroughly. If this is written in the contract, you may also have to pay for the maintenance of the house.
With the soaring prices of all the properties, this option has become ideal for helping the candidates and new buyers get their dream house in a perfect location.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com