While it offers a less conventional way of getting into the property market, a rent-to-buy agreement may be the route to go, especially for those buyers who need time to save for a deposit or to build up a healthy credit history.
Here we explain how rent-to-buy works and how it can benefit you.
It’s when a buyer commits to renting a property for a period of time before purchasing it.
The buyer and seller sign a rental deal for the agreed term. The agreement usually gives the buyer the option of whether or not to purchase the property at the end of the term.
There are benefits to be had from a rent-to-buy scheme, chief among them for those who are unable to qualify for a bond in the traditional way.
To qualify for a bond, potential buyers usually need to have saved enough to put down a deposit, usually 10% of the purchase price.
An upfront option fee will usually be paid on the property, followed by additional option fees. This gives the buyer time to build up funds for a deposit. This can be especially helpful for first-time buyers.
The credit record is the most important factor taken into account by the bank when determining whether to approve a bond application.
The credit record is based on the applicant’s financial history. Consistent payments on debts is one of the ways in which the credit record is fortified.
So the regular payments on a rented property will help you build up a good track record of payments.
Rent-to-buy can also be beneficial to the seller. The renter will be far more inclined to keep the property in good condition since there is the prospect of them buying it.
Of course, rent-to-buy is not without its risks, among these the fact that, until the transfer of the home goes through, the buyer’s name is not on the property’s title deed so there’s less security for your investment.
Another benefit is that the seller keeps the upfront fees should the buyer pull out of the agreement.
Despite the risks, rent-to-buy provides a way for first-time homebuyers to get on the property market without having to muster the funds for a deposit or worry about their credit record.
Although ooba Home Loans cannot help facilitate the rent-to-buy process for you, we can help you get the best deal on your bond should you decide to purchase the property at the end of the rental period.
We submit your home loan application to multiple banks, allowing you to compare deals and choose the best one.
So when you’re ready, apply with ooba Home Loans to get the best deal on your bond.
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