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3 Shocking Rent To Own Home Traps that No One is Telling You!

Blog, Rent To Own July 1, 2013

Rent To Own Home Traps

All Rent To Own Home Programs supposed to create a win-win plan between home buyers and sellers, unfortunately this is NOT always the case.

There are some Rent to Own companies which focus more on their own benefits without looking after the home buyers which causes them to be trapped in the program. If you were thinking of getting into Rent To Own Home, you would definitely want to make sure you don’t fall into these traps. Falling into any of these traps can be a serious setback to your goal to home ownership.

Here are the 3 Most Common Rent To Own Home Traps:

        

         1. Heavily Overpriced House

    • Some of the house prices were set so much higher than market price and this prevents you from getting the mortgage at the end of the contract.
    • For example, if you got out of contract within a year compared to 2 years, the rent to   own home companies’ profit will drop significantly. Therefore, this will prompt them     to protect their profit by setting a high purchase price. So even if you got out early,       they will be guaranteed of a fat profit.
    • At the end of the contract period, if the appraisal didn’t come out close to your purchase price, you will have trouble getting the mortgage you need in order to purchase the house and this will risk losing your down payment and accumulated rent credit.

      2. Over-Committed with your weekly repayment.

    • This is the primary reason why people fail for all home ownership.
    • Stretching  your budget more than what you can afford is not wise move for any home buyers.
    • Fail to keep up with the payment, and you will be faced with the risk of losing the

      3. Short Contract Period.

    • One of the goal of rent to own home program is to help home buyer to get mortgage at the end of the contract.
    • You really want to make sure you have enough time to overcome whatever the obstacle that was preventing you from getting the mortgage in the first place.
    • If the contact period is less than 2 years, you most likely stretching it as it takes time to fix any of these problems

1. Saving enough deposit.
2. Fixing any credit issue in your report.
3. Building good track record of income and saving

How To Avoid These Traps?

1. Find Out the Real Market Price.

    • Understanding the value of homes in the area.
    • Inspect at least 3 similar properties in the area.
    • Talk to the local real estate agent who can show you the values of comparable homes sales.

2. Understand your Finances

    • Calculate your affordability or budget by using Mortgage Affordability Calculator.
    • Stay within your budget based on what you calculated.
    • If anyone pressures you to stretch beyond what you can afford, consider not to proceed.

3. Make you get the a Long contract period, just in case you can’t get finance from the bank.

    • Having contract period long enough to get to the point where you can get the mortgage from the bank.
    • Talk to credit repair companies and Mortgage Brokers and estimate how long you actually need to fix your credit issues.
    • Ask for the option to extend your contract period as well, just in case you need more than what you expected.

Find the Right Rent To Own Home Program

Although Rent To Own Home program can help you to get into the home ownership quicker, there are a number of possible traps that you can fall into along the way. I hope this blog can help to you to find the right one, prevent you from falling into some of  the traps and move you closer on your path of home ownership.

Lastly, please leave your comment and feedback. If you have any suggestion on my next topic, please let me know,  I love to hear from you.

Admin

Contact us at http://www.renttoownhome.com.au/contact-us to claim your listings.

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15 Responses to “3 Shocking Rent To Own Home Traps that No One is Telling You!”

  1. You story is true we are dealing with the loyers, current afdair people to get are deposit and rent credit back two years after we could not get the loan and lost over $50.000 deposit double rent payment and renovating someone asle house us we were told that will increase the house price none of that happend we are back in rent riped off.

  2. I’m really sorry for your lost, $50,000 is huge.
    With an ethical company, you should get at least 3 years contract period with an option to extend.
    Thank you for your story, I will share this with others.
    Hope your story will help others not to fall in to these traps.

  3. We heard the same happened to someone else from the same person on this site just recently, on the start of the contract she promise to return the deposit and rent credit if you not get the loan, but then she change her story in her interest and keep the money. this women doesn’t have any intension to help anyone that is way she is looking for desperate people with bad credits , cash workers she does know from the start that the chances are very small that anyone will buy a property she asking for 10% deposit and money for stamp duty which was in are case $ 60.000 of cores that we could not pay $650 a week rent and renovate the house putting over $30.000 in the house pay off the bad credits and save $60.000 in 2 years who can do that way would we been on this site in the first place, house prices are over the roof but the reason is she does NOT own this properties that she advertise she is just the middle person having contract with the owners that SHE will buy the property after 2 years her purchase price from the owner is about $50.000 less then she will make the contact with someone like us so if the purchase go true she will pay the owner and keep the difference she keeps the difference of the rent money collect the deposit on the start smart don’t you think scamming people all the way. when we contacted her she said she will not return the money but we can move to another rent to own property and she will transfer are money on that house ,how big of idiots should we bee to do the same again and of cores she would not transfer anything but air saying the the property is worth more then it is and like she put the price down for us, o and she offered to borrow us the difference if the bank doesn’t approve us enough so the money that she already collected from us she will borrowed back to us so we will played back to her with interest isn’t she funny said the story is but you have to lough I hope that so many people will read this because of her everyone will suffer on this site, we are not sitting still she may think that she did get away but she is wrong investigation is on its way buy?????????she will get what she deserves buy the way her name is XXXXX stay away from her scamming she is getting rich on other peoples swet

  4. Yes Angela,

    Most of them are not actual owner, their name are NOT on the property title but some are.

    From what I see here, there are 3 warning signs at the beginning which we can look for.

    1) In General, no deposit and rent credit are refundable, if so extra legal paperwork is needed to cover that, so we can prove it when we need to.

    2) Renovation project always a bit risky, try to avoid handyman special property because renovation doesn’t always bring up the value of the house, especially in the trending down or quiet property market.

    3) Short term – As you already know, 2 years is a bit short.

    Rent To Own Program is a plan, a plan to help tenant buyer to own their home and getting a bank loan ASAP.

    Therefore, credit issues need to be fixed first and it should be our focus. The Bank want to see:
    i) If we can keep up with the payments:
    ii) Are the payments consistent.
    iii) Are we missing any payments.
    iv) Preferred third party company (like real estate agent) to collect the rent and option fee as the bank don’t want fabricated statement.

    Once we fixed our credit issues we can free ourselves from the middleman and deal directly with the bank instead.

    Due to lack of regulations and guidelines, we are hanging without much help.

    Good news is the state government is stepping in and auditing as much rent to own program as they can. hope they can move faster and come out with better regulations and guidelines to protect the tenant-buyer and the owner which really create the win-win situation for all parties involved.

  5. The name was in the story but removed buy site it is Shery

    • Hi Angela,

      Try not to name anyone, as we will get into trouble for defamation and legal actions against our site where we don’t really want to get into.

      We encourage sharing constructive comments and solutions for readers so it will help them to avoid the same mistakes.

      We will leave the name there for now, but once I got warning from solicitor, I will remove it again.

      Hope you understand.

  6. Hi I am new to all this. I have been reading so many horror stories. Is there anyone that has any positive comments or recommend any vendor that they are happy dealing with. I have spoken to a few and I think I have found 1 that I feel is honest. He answers all my enquiries promptly and has agreed to put a condition in the contract that if Finance is not approved after the 3 to 5 years he will allow vendor finance to continue until the bank approves my loan. It would be great if we didn’t have to think that we may be ripped off if we enter into a contract of vendor finance. Too many greedy people in the world that it is not fair for the ones that are trying to help people to home ownership and to make extra money the honest way. Good luck to all. I hope we all get what we want without being ripped off and to those who have been ripped off I am truly sorry. It will all turn out in the end. Everything happens for a reason. I was very glad I read the blogs today because the person you mentioned I have been trying to get in contact with for the last week about a property so Angela I thank you for posting.

    • Hi Tanya,

      There are many good one as well, but the bad news always travel wide and fast.

      Sounds like you found a good vendor to work with.

      Good luck to you, all the best to you and I hope you will tell us your good story to us one day.

  7. Hi Tanya,

    In most cases I share Seng’s concerns about renovating as a strategy for building equity or ‘increasing value’ under a Rent to Buy Contract. It’s a recipe for no-one’s expectations being met – including the vendor’s.

    But when someone believes they got a bad deal, ask what else they are comparing it to? That ‘something else’ is usually a regular mortgage from a bank.

    Most of this handful of bad outcomes would be avoided, if buyers were helped to fully understand what they were actually buying in the first place. I’ll get to that shortly.

    But firstly, anyone buying a home, whether through Rent to Buy, Vendor Finance, or a normal bank loan, needs to consider their Exit Strategy before entering the deal. Your Exit Strategy has three main considerations:

    1.What to do in the future if everything goes according to plan;
    2.What to do in the future if everything doesn’t go according to plan;
    3.What to do in the future if nothing goes according to plan.

    For example, let’s say you bought a house and land package in QLD 5 years ago, and did all the right things to qualify, and you got a bank loan.

    For many people who did this, it could be years before they have enough equity to even sell the property for more than they owe, let alone sell it for what they paid for it.

    Therefore if you are borrowing from a bank, your Exit Strategy now needs to include the possibility of getting a personal loan to cover the shortfall in value, just so you can pay out your mortgage if you need to sell your house. This is happening in Australia right now.

    If on the other hand you bought the same house on a Rent to Buy Contract and the house is now worth less than what you though it would be, the first part of your Exit Strategy could be to walk away without a debt.

    This is a much cheaper exercise than getting a mortgage straight away and being responsible for the debt. So Rent to Buy can give you a bet each way, regarding the property value in the first few years of the deal. This is a good thing.

    The second part of your Rent to Buy Exit Strategy, is to buy the property if it has increased in value. This includes getting a bank loan.

    But if you can’t get a bank loan in your future circumstances, then you’ll need to move onto the lesser known third part of your Rent to Buy Exit Strategy.

    The third part is selling the property.

    If you have the right to buy a property (which you do under a Vendor Finance contract or a Rent to Buy contract) then you have the right to sell it.

    This important point is not always understood by buyers or sometimes even sellers. The key is to give yourself enough time to do it – so pay attention to the market during your contract.

    Above all, remember the benefits of having the right contract. Rent to Buy gives you control of the property for the length of your contact.

    So that’s what you’re buying – the right to control someone else’s property and to lock in a future sale price (based on your own assumptions about the future regardless of what happens in the future).

    So whether you get to own the property or not, you’ll still get what you paid for – just like thousands of Australian bank customers who’ll need to take out personal loans if they want to sell their houses so they can pay out their mortgages.

    So why not mitigate the negative equity risk? Here’s how:

    Get Rent to Buy first, then a bank loan, and understand your three part Exit Strategy.

    This would have provided a better outcome for thousands of existing borrowers in the current market – and there are some simple ways to get this done.

    Good luck,

    Phil

  8. hi, i have a house in tewantin, it doesnt need fixing or anything like that , and we want to vendor finance it but we dont know how or what the go is , does anyone have any tips r websites that we can check out and understand,lol its all so very confusing
    thanks amanda

  9. Hi Amanda,

    I have replied your email.

    As this article is for the buyer, so I will not continue your conversation here. Please check your inbox.

    Cheers

  10. I am one happy Home Owner using the Rent To Own system…. And the simple fact is “KEEP UP TO DATE” with all rental payments,
    Just like anything else in the Credit and Financial world meet all payments to the agreement.
    We miss any payments, we pay the price, its that easy and that principle does not differ from Rent To Own.

    What Rent To Own provides is a clear system where you can start OWNING YOUR OWN HOME and save at the same time to GET A STRONG Credit rating from the Rent To Own system, to show your BANK, you can be trusted.

    More so, by using RENT TO OWN also provides a system you can use to SELL YOUR HOME and helping others having the same issues like yourself, Get Into Their Own Home.
    Legitmate Rent To Own providers are great systems worthy its cause, BUT YOU MUST KEEP UP with all the payments on Time. No different to repaying mortgages.

    You default with the Bank, the bank allows you some extra time to recieve your payment, but Rent To Own, does not have millions and billions in resources to carry you through your tough time, so their default agreement is a bit more STRICT.

    RENT TO OWN and keep up with the payments or You Will lose it all…

  11. Hi,

    Me and my family have recently got our PR granted and planning to move in by mid 2015. We are currently looking for our new home to buy. I came across this Rent to buy programme upon my online research and are wondering if this programme is recommended for us to sign up.

    Apart from the deposit assistance we are also thinking if renting the property first will be good for us to get to have a feel of the suburb first before buying it.

    Advice assistance needed for:
    ~ are we bound to buying the house in the end of the programme contract?
    ~ do we have an option to discontinue the programme? (Under any circumstances)
    ~ would this effect the first home buyer grant usage or can we only use the grant when we decide upon to buy the house?

    This is one of the house we found online currently pending for their agent to contact us:
    http://www.homely.com.au/point-cook-wyndham-melbourne-greater-victoria/listingdetails/256965

    Your helpful advice and tips would be much appreciated.
    Thanks in advance.

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