Buying a Home under Rent to Buy Terms.

Purchasing a home under Rent to Buy terms provides options and answers for buyers (and also sellers) that traditional real estate cannot bring to the table. Rent to Buy terms opens up the playing field, allowing anyone the opportunity to purchase their own home, even without meeting the banking criteria. This is why Rent to Buy's are so great. Many Australians have circumstances preventing them from obtaining bank finance at the moment - with Rent to Buy terms time actually turns from being an enemy to becoming a great friend to these people, as they are able to enter into a home purchase with flexible terms while they are waiting to rectify whatever is preventing them from obtaining a bank loan. 

If there is a mortgage on the Rent to Buy property, the seller's bank or lender will not even know that the Rent to Buy purchaser is part of the equation (although they would probably like to know). The reason for this is because the contracts exchange but do not settle straight away (this is known as a delayed settlement). The contracts usually do not settle for between 2 to 7 years, sometimes even longer. When a contract exchanges it makes the deal and its terms legally binding. When a contract settles, this is the ending of the deal, when all due monies due are paid out in full to the seller and the title of the property changes over into the new purchasers name. It is at this moment (at settlement) when the new Rent to Buy purchaser will have their own home loan set up directly with their own bank.

There is only one Rent to Buy type deal where contracts do not exchange at the beginning of the transaction. This is in a Lease with the Option to Purchase. The paperwork that is exchanged at the beginning of this deal type is called a Call Option deed. The contract for sale becomes an attachment to the Call Option deed. The contract for sale is only exchanged when the buyer decides to either exercise their Option or assign their Option to a third party at the end of the term agreed upon (and the third party exchanges the contract for sale directly with the seller). A Lease with the Option to Purchase is the only Rent to Buy deal where the buyer does not have to go ahead and purchase the property should he/she change their mind at the end of the term. With every other Rent to Buy type deal, the buyer locks him/herself into the deal at the beginning when contracts are exchanged.

Until settlement occurs it is critical that the Rent to Buy purchaser sets up his/her payments to the seller directly into the sellers mortgage account. Remember that it is not until settlement that the bank will have any knowledge of the buyer's involvement in the deal. This way the Rent to Buy buyer can be guaranteed that the payments that are being made are going directly off the mortgage - not going into the sellers personal account where the seller can have access to those funds and spend the money on other things outside of the mortgage.

By paying your payments directly into the sellers mortgage account, you will know for a fact that the seller is keeping on top of his/her repayments and not getting behind. If the seller were to get behind in his/her repayments and the bank were to begin to foreclose, the bank would not even know that you exist, you would lose all monies that you had put into the deal as well as being evicted from the property. This is obviously not the outcome you want, which is why setting up your payments directly into the sellers mortgage account is absolutely critical.

It is also important that you request that the seller asks his bank or lender to send duplicate communications to you (the Rent to Buy buyer) from the mortgage account, including statements, as this way you will be informed of all financial communications in relation to the property. Some lenders may not be setup to do this, so make sure the seller commits to sending you copies of everything they receive.

When setting up a Rent to Buy home purchase, it is also extremely critical that both sides (the seller and the buyer) receive individual legal advice from their own separate solicitors. Not seeking legal advice is signing up for trouble. This way a fair deal will be implemented, benefiting and covering both sides, not just one.

It is also critical when setting up a Rent to Buy home purchase that EVERYTHING agreed upon is documented into the terms of sale in the contract. Leaving things out and adding them later (after exchange) is too late. Every possibility, including the worst case scenario must be documented, covered and written into the terms BEFORE exchange. The documented terms in the contract are there so that both sides are legally protected should anything go wrong. The written terms are the back up of what has been agreed upon - you will not be covered unless it is written, and you may be in for a fight should anything go wrong with the deal without covering all the terms in writing in the contract.

Rent to Buy home purchases are great, they provide win/win answers and solutions for both sides. It is important that the deal is set up correctly as stated above to fully protect everyone. The more effort that you put into setting your own Rent to Buy home purchase up correctly in the beginning, the less likely things are to go wrong.

Our DIY Rent to Buy manual covers all facets of successfully setting up a Rent to Buy house purchase. The worst case scenario and buyer protection have also been included to promote thought, communication and documentation by people when they are setting up their own Rent to Buy deal. Our Rent to Buy manual arms you with knowledge, enabling your preparation and qualifying process to be extremely thorough, giving you every chance of putting yourself into a safe, winning home purchase.