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How It Works
What does a "Rent to own" mean? |
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"Rent to Own" Agreement = Lease + Option/Purchase Offer A Lease with an Option to buy means you: - Lease (rent) a property by signing a Residential Tenancy Agreement.
- Pay for the right (option) to buy the property by an agreed date at a fixed price. The amount you pay (separately from the lease payments) is called Option Fee.
- You do not have to buy the property if you change your mind. However, the Option Fee is not refundable.
- Once the Option Fee is paid, the seller MUST sell the property to you at the agreed price in the agreed time If you wish to buy and if the tenancy agreement has been met.
- The specific details of the tenancy agreement are covered in the Residential Tenancy Agreement, which is the rental contract between you and the owner of the property.
- The specific details of the option agreement are covered in a Deed of Option, which is the contract between you and the owner of the property.
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What are the advantages of buying a property of a property with a lease option? |
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- Only the seller’s approval required at this time-No bank or finance approval is required until you decide you want to get finance to buy property.
- Purchase price will not change. The purchase price is fixed when the contract is signed and cannot be changed regardless of any change in the value of the property.
- Short exchange. You don’t need to wait on bank or finance approval.
- Try Before You Buy. If you are unsure you really want to buy or are unsure that this is the best house or suburb for you, you can change your mind about buying. You will lose the non-refundable option fee, but you haven’t paid out thousands of dollars in the Stamp Duty and the loan repayments.
- Buy at your leisure. The purchaser may buy the house at any time during the term of the contract.
- Establish a good credit rating. If you are unable to currently get bank or other housing finance, proof of regular rent and option fee repayments over several years may help to establish a good credit rating, which may assist in getting their finance after all.
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What are the steps I take in order to move into the property and buy it? |
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- You will need to complete an application to take out a lease option on the property. An application fee is payable when the application is lodged.
- Consult a solicitor for an explanation of the Deed of Option to ensure that it represents the agreement reached with the Seller for the Option to Purchase the house.
- Sign the Deed of option.
- Sign the Residential Tenancy Agreement.
- View Contract For Sale.
- Complete the periodic payment authority for direct debit of rent and option fee payments from your bank account.
- Pay the Option fee.
- Move into the property, look after the property, pay your rent on time when it’s due.
- At least 3 months prior to the expiry date of the Option, advice the seller that you wish to proceed and buy the property. Seek bank or other financing as required. Arrange for a solicitor to handle the purchase on your behalf.
- Purchase the property and stop paying rent.
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What are the obligations of the person taking out the lease option? |
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a) The obligations of a person renting a property are set out in the Residential Tenancy Agreement and include: - i) Paying the rent on time
- ii) Keeping the house in good condition and repair
- iii) Remaining in control of the house - i.e. cannot leave it vacant for more than 30 days
- iv) If the tenancy agreement is breached, the Deed of Option is automatically terminated and Option Fee forfeited
b) The obligation regarding the option to purchase the property are set out in the Deed of Option and include: - i) The obligation to pay the Option Fee on time
- ii) The Option Fee is fixed for the duration of the agreement and will not be changed
- iii) The obligation to advise the seller of the intention to buy the property and to allow sufficient time for all necessary steps (e.g. arranging a bank loan o that the purchase can be settled on or prior to expiry date.)
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