10 Mistakes to Avoid in Rent-to-Own
For most people, a home is the largest purchase they’ll ever make, so choosing the wrong property can have disastrous implications for their wallets and well-being. Still, many homeowners feel a strong sense of pride in putting their mark on the property, building equity and having a place to truly call their own. Whether you’re a first-time buyer or looking at rent to own as an option for you, here’s a look at nine home buying mistakes to avoid:
1. Not Doing your Due Diligence. This is arguably the most important one of the bunch. Vet the company you are looking to partner with for your Rent-to-Own. Understand their experience, ask them why they do it. Ensure you understand how the monthly payment breaks down – $5,000 for a 500,000 property is likely TOO much. Ask why? Don’t take no for an answer. You should completely understand the process before you walk down the path to homeownership. Last part of due diligence – use a LAWYER to review your agreements so you understand your obligations in the Rent-to-Own.
2. Not Writing it Down. “The first step in the home buying process should always be to write down what features are most important in a house,” says Neil Oliver of Clover Properties. Doing this will narrow down the search (if a two car garage is in your top five important features, you wouldn’t end up wasting time looking at single car garage homes) and it will also focus you on finding what will truly make you happy. There is no room for rushing a purchase like this and looking at ALL types of homes can be overwhelming and will start to put pressure on you to just “pick one”. This is a huge mistake on a huge investment. Sit down, work out what features are important and write them down. Now you can start to look at listings that match your “want or need” list.
3. Using the wrong real estate agent. Just because your sister’s college roommate’s friend just got a real estate license doesn’t mean she’s the right agent for you. Vetting agents and looking for someone who does real estate full time and knows the local inventory is VERY important. “You can lose an offer if you’re not responsive in a couple of hours,” says Oliver. Conduct mini-interviews and ask questions about how the realtor communicates (is he a phone guy, fax guy or is he more tech savvy?). It is important that you feel comfortable with the agent you choose to work with and believe that they are working towards your best interest. Even better, find a realtor who is educated in Rent-to-Own. They will ultimately be in a better position to serve your needs.
4. Shopping before you get preapproved. Before you get serious about buying real estate, find out how much mortgage you qualify for and get a preapproval letter from your Rent-to-Own provider. “Looking before you know what you can afford can result in making an offer on a house you fall in love with only to find out that you cannot get qualified for that house. Stay off of that emotional roller coaster,” says Oliver. ” I cannot tell you how many people jump on a call with me, have a house in mind only to find out that the price point they thought they could afford does not fit in under the current stress test”. Nothing is more important than ensuring you can exit into your own mortgage so affordability is king.
5. Maxing out your spending power. Qualifying for a half-million dollar mortgage does not mean you should buy a half-million dollar property! Many first-time homebuyers tend to make this mistake. “It’s always wiser to be more conservative,” says Oliver. It is important to remember that as a homeowner, you have additional expenses such as property taxes, condo fees and maintenance that renters do not, so some first-time buyers fail to budget for these extra costs. There is always the possibility of unexpected situations (furnace repair, roof repair) and it’s a good idea to keep a cash reserve on hand. Some dual-income couples choose to qualify based on just one income to give themselves a financial buffer.
6. Taking advice from outsiders. Parents, relatives or friends who haven’t bought property in the local market may not understand local pricing and market conditions. Parents or in-laws who own houses in the suburbs may also have unrealistic expectations about what the equivalent amount of money buys in the city. When parents are gifting money for a down payment, their input may be necessary, so be sure to involve them when decisions on property need to be made.
7. Skipping the inspection. Home inspections can help alert potential buyers to problems such as structural issues, faulty wiring and other problems a layperson probably wouldn’t spot. But if you’re in a market that moves quickly, you might be tempted to skip an inspection to make the offer more appealing. Always insist on an inspection. You’re spending hundreds of thousands of dollars, make sure you’re getting what you think you’re getting. We saw strange things during COVID and it was tough to get inspections on properties and still have a competitive offer – think about a pre-inspection in these cases. These are inspections that are done BEFORE the offer is made and will allow this condition to be removed to make the offer as strong as though he do not an inspection at all.
8. Getting too attached to one property. In competitive markets, you may have to put in offers on several properties before one is accepted. Oliver says some buyers get so infatuated with one property that a rejected offer hits them hard. “It’s OK to feel anxious, but you need to be able to fall in and out of love during a home search,” he says. “If you find a home that you think is perfect for you and you don’t get it, you can’t stay down too long. You have to recognize that wasn’t the house for you.”
9. Not Revisiting The Area. You found the house. During daylight hours, the house and the area seem to be a perfect match for your families needs. BUT what happens if you find out that the area takes on a different character altogether once the sun goes down? “Be sure to visit the area you are interested in both during the day and at night,” Oliver says. Don’t be afraid to ask neighbours for their opinion on the area as well.
10. Not Planning for Closing Costs. Any time you purchase a house, there will always be closing costs. Many first-time homebuyers, especially, tend to forget about these costs. Be sure to keep a cash reserve to cover the legal fees, the land transfer tax and in some cases broker fees. It is always best to discuss these costs with your mortgage broker, they can help you budget correctly as you work towards the closing.
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