Mewborn Team Real Estate Consultants: CoastalLuxurySanDiego.com

August 24th, 2009

Carlsbad Real Estate For Sale – Is a Rent To Own Right For You?

Categories: Buyers, Carlsbad, Foreclosure Prevention, Home Loans, La Costa, Oceanside, Real Estate FAQ, San Marcos, Sellers

Carlsbad, CA – With Carlsbad real estate buyers scarce and Carlsbad mortgages tight, some home sellers are offering rent-to-own options to potential buyers in place of your traditional transaction.

Rent-to-own contracts, usually require buyers to pay a premium on each month’s rent and sometimes an up front fee/deposit of about 5% of the purchase price. The regular rent then goes in owner’s pocket (presumably to pay the mortgage), but the additional payments are used to buy down the price of the home.

If done properly, a rent to own (or lease option) may be a great way for a buyer to build up down payments and improve their credit scores, while living in that home they wanted to buy.

An example that we have seen was this – On a $600,000 Oceanside home, the buyers paid $3,300/mo – $1,000/mo more than market rent. After three years, there would be $36,000 accrued in an account for their down payment and closing costs. If the buyer could not perform at the end of 36 months, the contract was void.

The real risks are to Carlsbad real estate buyers. The contracts are typically written to protect the sellers. Some specific risks:

Loss of your payments to date – often if you fall behind or can not perform, you are not entitled to a refund of any previously paid fees, deposits, or rent premiums paid.

Lack of Financing - Most Carlsbad, Oceanside, and San Marcos buyers are entering into lease option contracts because they can’t get financing in the current market place. If you can’t get financing at the end of the lease option contract, you forfeit everything you have paid to date.

Falling home prices - Most lease options establish a set price at the time the contract is signed. As we have seen over the past couple of years, prices don’t always go up. If after signing the contract, Carlsbad home prices fall, the buyer may not want to continue with the purchase, but that still doesn’t mean that they get their money back.

The House Going Into Foreclosure – Some Carlsbad renters have paid their inflated rent payments on time, only to find out the seller hasn’t been paying the mortgage. Instead the house goes into foreclosure, with the buyer/renter being evicted, never benefiting from their inflated payments.

Although these rent to own options seem like a great solution when it is hard to make a deal, there are plenty of pitfalls to consider.

If you have any questions about Carlsbad, La Costa, Oceanside, or San Marcos real estate or mortgages – please contact us.   Talk to a professional and make sure that YOUR interests are represented!   We are always happy to answer any Carlsbad real estate or mortgage questions.

Posted by Mike and Amy Mewborn//