12. March 2012 by Kristian Alekov.

Chapter 83 of Florida Statutes provides the steps to follow in an eviction case. The following information is to assist you with what documents must be filed and the costs involved in a simple eviction case.

The filing fee, payable to the Clerk of Court, is usually around $98.00, but varies between counties. Payment may be in the form of cash or personal check with proper identification.

Below are included the basic forms necessary for evictions for non-payment of rent. This short summary of the legal procedure is targeted toward regaining possession of your property. It does not address the payment or recovery of back rent and damages owed to you.

Step One: Prepare and Serve Three-Day Notice.

Before filing a Complaint to recover possession, a landlord must serve a Three-Day Notice demanding payment of rent or possession of the premises within three (3) days (excluding Saturday, Sunday, and legal holidays) after the date of delivery of notice. After the expiration time on the service of the Three-Day Notice you may proceed with filing the Complaint for Eviction. (Remember how we count the days.)

Step Two: Complaint  & Summons

Prepare Complaint: The landlord shall file the original Complaint and sufficient copies of the Complaint for each tenant with the Clerk. The Court must also receive a copy of the Three-Day Notice and a copy of the lease, if one exists. You must also attach a copy of the notice and lease to each copy of the Complaint. The Complaint must be signed in the presence of a deputy clerk or must be notarized by a notary public.

Issuance of Summons: After the Complaint is filed and the fee paid, the Clerk will issue an Eviction Summons/Residential. A copy of the Complaint, three-day notice, and lease (if one exists) will be attached for service on the tenant. The Sheriff or a private process server can serve this Summons.  The Sheriff’s fee is usually around $20.00 per tenant and must be in the form of cash or money order. Other Florida counties may vary. If paid by cash, you must personally deliver the Summons to the Sheriff’s Office, Civil Processing Department. Private process server fees vary and you would contact them directly.

Certificate of Mailing: If the tenant cannot be reached either personally or by substitute service, the summons can be served by posting (attaching to a conspicuous part of the premises). If this occurs, the landlord must request that the Clerk mail the notice to the tenant by Certificate of Mailing.

Step Three - Day in Court

Answer by Tenant: The tenant has five days (exclusive of Saturdays, Sundays and holidays) after service of the Summons to file an answer. If an answer is filed and monies are deposited, the landlord must contact the Court to schedule a hearing.

Default:

If the tenant fails to answer the Summons, the landlord may file a Motion for Default by Clerk/Default and proceed with obtaining a Final Judgment for Possession and obtain a Writ of Possession

The Clerk is authorized to enter a Default at the end of five days after service is obtained upon the tenant. Upon the default being entered by the Clerk, the Judge will then review the file and enter the Final Judgment for Possession and direct the Clerk to issue the Writ of Possession.

Furnish the Clerk with an original Final Judgment for Possession and a copy for each of the tenants and yourself. You must also furnish the Clerk with pre-addressed stamped envelopes to the tenant(s) and yourself for mailing the conformed copy of the Final Judgment. The Writ of Possession should be presented to the Clerk for issuance.

Step Four: Wrapping it up

After entry of the Judgment, the Clerk will issue a Writ of Possession to the Sheriff describing the premises and commanding him to put the landlord in possession after 24 hours’ notice conspicuously posted on the premises. The Writ must be served by the Sheriff. The fee payable to the Sheriff is around $70.00 by money order, check or cash. If cash, you must personally deliver the cash and the issued Writ to the Sheriff. The Clerk cannot accept cash payment for the Sheriff.

Please remember that RHOL and Court Clerks are prohibited from giving specific legal advice. If you have any doubts about your ability to file an Eviction on your own behalf, you should seek legal advice from an attorney.

The Clerk’s office is usually open Monday - Friday from 8:30 am until 5:00 pm. Check your phone directory for the direct phone number.

The County Judge’s phone number for setting any hearings is also listed in the phone directory Ask for the Judge assigned to your case.

Florida Forms 

You must furnish the appropriate number of copies as stated or your case cannot be filed. Copies may be purchased from the Clerk for a fee.

Three-day Notice to Tenant/Demand for Payment or Possession  PDF  Word

One tenant  - Original and 3 copies
Two tenants - Original and 5 copies

If there is a written lease

One tenant   -  Original and 3 copies
Two tenants - Original and 5 copies

Eviction Complaint  PDF  Word

One tenant  -  Original and 3 copies
Two tenants - Original and 5 copies

Eviction Summons-  Five (5) day/ eviction only  PDF  Word

Original Summons for each tenant and two copies for each tenantCertificate of Mailing  PDF  Word

Original and a pre-addressed stamped envelope for each tenant

Motion for Default by Clerk   PDF  Word
      to be used if tenant does not answer

Original only, no copies required.

Motion for Default by Court  PDF  Word
to be used if tenant files an answer and rent money only

Original Only,  no copies required

Notice of Hearing  PDF  Word

One tenant, 1 copy
Two tenants, 2 copies

Affidavit of Costs   PDF  Word

Original only -  no copies required

Final Judgment of Possession  PDF  Word

One tenant - Original and 1 copy
Two tenants - Original and 2 copies

Self addressed stamped envelopes to Landlord and all tenants

Writ of Possession  PDF  Word

Regardless of number of tenants -Original and 2 copies with $70.00 (varies from County to County) check or money order made payable to sheriff.

Brought to you by Affinity Title, Fort Myers, FL, your Short Sale Expert!

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2. March 2012 by Kristian Alekov.

Did you ever see the movie, “Money Pit,” with Tom Hanks and Shelley Long?The storyline is Walter Fielding and Anna Crowley have to start looking for a new house, but there’s not much they can afford. This soon changes when they meet a lonely old con artist who sells them a beautiful mansion at a ridiculously low price. Only there’s a catch. The second they move into the house it falls apart, starting with the stairway collapsing to the bathtub falling through the floor to eventually the chimney falling into the house. Finally, they have to renovate the house before the frame collapses but the renovations also prove to be a disaster. Toward the end of the movie, the couple is left hopeless, broke, and with a house that is in ruins. While this is only a movie, stories like this happens everyday in real estate investing.

Since failed real estate investments are no laughing matter unless they are seen on the big screen, avoiding disaster is the key to success in real estate investing. You start doing this on day one when you begin to browse properties looking for the perfect opportunity. But even the perfect opportunity can turn sour if you don’t know how to avoid mistakes during the renovation process.

The number one renovation mistake made in real estate investing is hiring an incompetent contractor. You should always check and double check references, but more importantly you should make sure that you can communicate with your contractor.

Another common real estate investing mistake that is commonly made during the renovation process is to take on too many structural changes. These changes usually don’t earn a great return on your investment and they drain the budget and eat up valuable time. It’s true that removing a wall or two can really open up a floor plan and make your property sell quickly. These are the types of structural changes that you should go for while avoiding ones that serve no purpose.

You should always stay true to a home’s style when renovating for the purpose of real estate investing. This means that you should avoid putting a New York City loft in an Arts and Crafts bungalow. Keep in mind that people who look to buy a house of a certain style want that house to be true to character. Therefore, don’t change the character of the house during renovations. Enhance it instead.

When renovating a house that you wish to sell to someone else, you should strive to make the changes neutral and impersonal. Avoid infusing your personality and decorating tastes into an investment because they might not be tastes shared with your potential buyers.

The renovation process is where you make the money in real estate investing, but it is also where you can lose a great deal of money. Strive to stay on schedule and on budget, and don’t be afraid to ask others for their opinion before you make any final decisions.

This post brought to you by the good folks at Affinity Title. We would love to have you follow us on Facebook.

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2. March 2012 by Kristian Alekov.

When you put your house up for sale, consider yourself lucky if you are able to close a deal within 5 to 6 weeks. More frequently houses stay on the market for calendar months without any offer and the owner is later compelled to reduce the value simply to recover from the whole process.

To sell your house fast, the first thing you need to is obtain the services of a reputable real estate agent. An exceptional realtor understands how to market your house. Also, follow these tips from your friends at Affinity Title and you’ll have the opportunity to sell your house fast:

1. Set a Suitable Price — The most essential factor in trying to sell a home easily is to price it right. It’s strongly recommended to begin with the average price in the area instead of beginning with the wanted net gain. The latest selling prices as well as the fair market value can really help you determine the right selling price of your house. Don’t anticipate selling for a lot more than the average price in the neighborhood.

2. Organize your Property — Make your property more attractive before you decide to start showing it. Make your house look its absolute best from the beginning by producing the necessary repairs and by sprucing things up. A more appealing house is a more sellable house.

3. Get Ready to Display the House Any Time — It is important that your property should look as close to move-in state most of the time. Pack up the junk and carry out a thorough home cleaning. Litter and junk will decrease the probable value of the home and distract the purchaser’s interest.

4. Provide Incentives — Incentives are very good alternative to reducing your selling price. For example, an offer to protect closing costs might help a striving customer come up with a down payment. You may also provide decorating allowance or incorporate household goods and appliances in the purchase price.

5. Fade Into the Background — When the property is being exhibited, keep a low profile. If you have sought the aid of a realtor, enable him or her to carry out the selling. If you happen to be carrying out the selling all by yourself, be there to answer important questions and conduct a quick tour, yet give customers time to be alone to check out the house.

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2. March 2012 by Kristian Alekov.

Not very many people know about title insurance the way they may about other, more common types of insurance—life insurance, home owners insurance, car insurance, health insurance, etc.  Title insurance, however, is a type of insurance that anyone that owns property will, whether they know it or not, be forced to purchase.

There are a number of myths that surround title insurance and the good folks over at Affinity Title are here to “bust” some of these common myths.

Myth #1.  Title insurance only covers the bank or lender.  Yes and no.  There are 2 types of title insurance policies.  One of the policies covers the lender (known as a “Loan Policy”) and another separate policy covers you, the buyer (known as an “Owner’s Policy”).  Also see Myth #3.

Myth #2.  If I refinance, I don’t need to get a new title insurance policy.  As the buyer, you will not need to get a new insurance policy if you refinance your loan. Once you purchase an Owner’s Policy, you and your heirs will be protected as long as you have an interest in the property.  However, when you refinance a loan, you are getting a brand new loan and the lender will require you to purchase a new Loan Policy when refinancing.

Myth #3.  Title insurance is required when buying a home. When purchasing a home, the lender will require that you purchase a Loan Policy and that cost is typically included along with all of the other costs associated with purchasing your home.  You aren’t, however, required to purchase an Owner’s policy—although it is highly recommended that you look into doing so.

Myth #4.  Title insurance will protect the value of my home. Title insurance only helps in the event that there’s a claim that comes up against the title of the home.  It doesn’t prevent the loss of marketability of the property due to a title claim.  If a claim arises, you will most likely not be able to sell your home until the claim is settled.

Myth #5.  I have to go with the title insurance company my escrow company and bank use.  This is not true.  You have the right and option to seek out and research the wide variety of insurance carriers to write your title insurance policy.  While it may seem convenient that the lender or the escrow companies already have an insurance agency that they work with, keep in mind that they are not always looking to find you the best rates available and may have their own financial interests in mind.

Myth #6.  Title insurance is expensive.  Premiums for a title insurance policy are calculated differently based on where you’re located and some regions the policy covers certain costs and in other regions, it does not.  Unlike other types of insurance, title insurance has a one-time premium that is paid at the time of closing escrow and is typically calculated as a percentage of the price of the property.  This rate varies and your title insurance agency should have this available to you before purchasing a policy so that you can make an educated decision when choosing a title insurance company.  Keep in mind that while title insurance helps protect you from the “what ifs” against the title of your property, it will be far less expensive to you to get the policy than to pay out the attorney fees and court costs associated with defending your property’s title should a claim arise against your property.

Myth #8.  I don’t need title insurance. Whether you need title insurance or not, your lender will make sure that they are covered in the event that a claim comes up against the title of your home or property.  You don’t “need” to purchase an Owner’s Policy, but given the fact that your home may be one of your most valuable assets, it would be wise to spend the extra money upfront to pay the one-time premium to help with the costs associated in case something does come up.  The cost involved in defending your property’s title if something does come up isn’t just limited to attorney fees or court costs, but there’s also the costs associated should you have to sell your property, find another home, move somewhere else, etc.

If you are looking to buy a home or want coverage to help you protect any real property you may currently own from any title claims in the future, contact Affinity Title today to get a quote.  Like many things in life, title insurance is one of those things you don’t realize you need until it’s too late!  So, Affinity Title today!

Posted in Marketing, Short Sales, Foreclosures, Commercial Real Estate, Rent to Own, Real Estate Rentals, General | No Comments »

2. March 2012 by Kristian Alekov.

Wondering how much title insurance costs? Well the short answer is that title insurance costs vary from state to state. From vehicles to homes, insurance agents specialize in this information. As customers, we tend to pay what is required. Even with the fiscal crisis, there has been no significant reduction in title insurance rates. Although incentives are available, they normally entail a certain criteria. While some qualify, most drivers simply cannot meet the requirements.

Therefore, we end up paying exactly what is needed. As you browse for better rates, keep in mind that specific costs will not change. Title companies for offering services assess the basic insurance rates. These rates can also rise at the company’s discretion. So, in order to secure our vehicles, we continue to pay for expensive titles and services.

Despite the rate hikes, the average cost of home title insurance ranges from $1,000-$2,500. This is based on average closing fees for first time home buyers. Title companies can also charge different rates based on their needs. They, however, still have to furnish these rates to the insurance commissioner. Although this varies from state to state, it is a way to prevent rate gouging. For home buyers, title insurance costs are based on the following:

• Home Lender’s Policy – This policy is designed to protect lenders during title disputes. It also counters any losses and additional costs.
• Home Owner’s Policy – This policy is designed to protect homeowners during title disputes. It may cover legal fees and associated costs, along with full home value coverage.

While average title insurance rates exist, they can always be modified. One way to secure a lower rate is by conducting an extensive search.

How can I compare title insurance quotes?

Title insurance companies are available on the Internet. From basic fees to enhanced services, you can access a wide array of quotes. It is always good to compare rates, so you know what competitors are offering. Whether you seek title insurance for cars or homes, obtaining multiple quotes works best. Several sites even offer free quotes for your convenience. Simply input your information to receive current information.

If available, you may even customize your search preferences. This includes local or regional searches, along with specified types of title insurance. When conducting your search, avoid sites that charge for title insurance quotes. These can be accessed for free, and should not consist of any costs.

Title insurance quotes also provide company information. Although details are limited, you can effectively compare their services. Some sites have market ratings and client testimonials. This is based on overall service, along with the best title rates possible. If you like a certain quote, simply select it and proceed. It is important, however, to notify your insurance company of any changes. Failure to do so can lead to delays in coverage.

A great way to compare quotes is by searching from state to state. Since states differ in title insurance coverage, you will see where your state ranks. Expensive states naturally have expensive title insurance. If you live in one of these states, you still have several options available.

How does customer feedback affect title insurance quotes?

When searching for title insurance quotes, customer feedback is very helpful. With precise insight, they can let you know how good or bad a company is. Although the decision is yours, this can still be a useful source, especially if you are undecided.

Another way is by reviewing company ratings. From complaints to client testimonials, you can utilize these resources to make an informed decision. For a listing of official complaints, contact your state’s insurance commissioner.

To access title insurance quotes, please click HERE.

Posted in Marketing, Short Sales, Foreclosures, Real Estate Rentals, Rent to Own, General | No Comments »

13. February 2012 by Kristian Alekov.

As we have hit hard times in the market, the time has come for homeowners that are looking to sell their property to think creatively. If their home is just sitting on the market, they should begin considering Rent to Own. A Rent to Own would immediately free them from their payments by having a qualified tenant buyer in the home that makes monthly payments, does repairs, and takes good care of their home as if it were their own, as at some point in the near future, it just may well be if they decide to exercise an option to purchase the home at a predetermined price and during a predetermined period of time.

Additionally, as homes for sale by owner (FSBO) are everywhere you look, few sellers realize the benefits of rent to own or lease purchase (perfect for FSBO sellers with a home that needs repairs, a home with zero, little or negative equity, or a house in a buyer’s market). If your home is available as a rent to own home, it will increase the demand, as there is no database that has all the rent to own homes listed. Nine times out of ten lease option homes will not be listed on the MLS.

Overall, the best thing to keep in mind is that the more options that you offer a prospective buyer, the better off you will be. If they begin as a tenant, and in 12-24 months, they become a buyer, all the while covering your mortgage and caring for your home, is that such a bad thing in today’s market? These are questions that you need to ask yourself if you want to move your home.

If you are going to venture into this with a real estate agent, tell them exactly what you want, and have them work for you. Have them list your home as a Sale or Lease Option (same as rent to own), and let them show you the paperwork and go over it in more detail with you. If you decide to venture it alone, discuss it with your attorney so they provide you with the proper paperwork needed to do this in your state.

Please take a solid look at Rent to Own and begin breathing easier!

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12. February 2012 by Kristian Alekov.

Buying rent to own house is a very beneficial process for the individuals having restrictions on making down payments, limited earnings, and or poor credit scores. This process allows such individuals to purchase homes prior to the fixation of restrictions.

At present, for several U.S. citizens, the dream of home ownership appears to be far beyond imagination. The real estate prices have skyrocketed over the last several years, and currently it’s almost impractical to acquire a home without good finance and mega incomes for compensating a down payment. This is a demoralizing truth for individuals who reside with big or joint families.

Though, in past few years, increasingly popular and equally advantageous alternatives have come up for individuals facing all the difficulties pertaining with home-buying. Hence, buying rent to own house is a viable solution for all these difficulties. This technique of rent to own is also known as lease option or a lease purchase.

The encouraging factor in the process of buying rent to own house is the non-requirement of the eligibility conditions of loan brokers and banks for buying houses. This is because, in such cases, the sellers are real estate investors and hence, more interested in working with the buyers rather than the traditional homeowners selling their house through a realtor and having the buyers use traditional financial institutions.

Due to this, the seller real estate investor mostly accepts a lower down payment then what is required in dealing with a traditional bank or financial institution. These positive aspects of rent to own houses are very tempting for the people who are not able to catch up with the high costs of real estate, or who have encountered events resulting in the temporary lowering of credit scores.

In return, of these benefits, the tenant buyers of the rent to own house have to show flexibility in some other manners. Normally, such buyers are expected of paying costs which are close to, or sometimes even more than the market value of the concerned real estate. There are two reasons for this, they are,

1. The seller real estate investor of the rent to own homes requires rents that are above the market value for covering mortgage on the house.
2. The sellers can give rent credits to the buyers in return of a high monthly rent.

Consider the instance of an individual buying a home worth $300,000 with a monthly mortgage of $2,200, and the owner desires to sell it. However, many other houses are also on sale in the same vicinity with a few priced at comparatively lower prices. At such times, the home seller real estate investor decides to sell the property rent to own to a tenant buyer quickly, instead of selling it much slower traditionally waiting for buyer with a pre approval for a mortgage and realtor in hand .

The creative procedure of buying rent to own house is day by day becoming more popular. This is due to the “Win-Win” factors present in such procedures. Here, the buyers are able to acquire a home with restricted money and finance, and the sellers are able to attain a fair price for their residence with a swift transaction.

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12. February 2012 by Kristian Alekov.

If you’re at a place in your life where you’d really rather not be living in an apartment but you don’t have the money to buy a home yet, an in-between option can get your foot in the door faster. It’s called “renting-to-own” or a “lease option“. Before you consider this type of arrangement, you should be aware of how it works, who benefits and the many things that can go wrong.

How You Can Rent to Own
In a lease option, you rent a property at a cost slightly above market rate. Prior to moving in, you agree on a potential purchase date and purchase price for the home. You may buy the property at any point during the rental period up until the lease option expires. The lease option period can be any length of time that you and the seller agree to, ranging from several months to several years.

If you do purchase the property, the seller will credit part of your rent back to you, usually more than the portion of your rent that was above market rate. You can put this money toward a down payment and closing costs, or keep it. The purpose of the above-market rent is to give the seller an incentive to complete the transaction. If you do not purchase the property, all of the rent you paid remains with the seller, giving the seller an incentive for taking the property off the market during the time you were renting it.
Note: Not all states allow lease options on residential property, so the buyer should ensure that the contract is legal.

How It Benefits Sellers
One of the main reasons why a seller might be interested in a rent-to-own arrangement is because if an owner is having trouble selling, rent-to-own provides an alternative to lowering the home’s price, taking the home off the market, or renting the home out long term. Because a selling price is established in the lease-option contract, the current homeowner knows exactly what to expect if a sale goes through. If the market declines slightly during the lease period, the sale price is already locked in, but the tenant will probably still be interested in buying the property because of the rent money rebate. Meanwhile, the owner gets help paying the mortgage, property taxes and insurance. Also, unlike a traditional rental agreement, the tenants are more likely to take care of a lease-option property because they have the option to purchase it.

How It Benefits Buyers
The main reason why a rent-to-own agreement appeals to buyers is a financial one. If buyers don’t yet have the down payment or the monthly income to qualify for a mortgage but believe they will within the next couple of years, a lease option allows them to accelerate the path to homeownership. By signing a contract now, the buyer locks in a purchase price, which means no worrying about rising home prices. (Note: In a rapidly appreciating real estate market, the seller of a lease-option property would probably want to add a clause to the contract allowing for the price of the home to increase with the market.)

The buyer also does not have to worry about coming up with the money for property taxes, private mortgage insurance or homeowners insurance, and the seller will usually continue to pay for and complete any maintenance and repairs on the home. Finally, by living in the home before deciding to purchase it, a buyer has the advantage of a lengthy test drive on the home before jumping into a major financial commitment. Best of all, if the buyer decides to walk away from the deal, the only consequence is the loss of that portion of the rent paid that was above market rate. If the buyer ends up purchasing the property, the seller will credit part of the rent back to the buyer, often more than the portion of rent that was above market rate.

Potential Pitfalls for Buyers
Of course, everything doesn’t always come up roses with lease options. A would-be buyer should be aware of the many things that can go wrong in the process before getting involved in a rent-to-own agreement. Before entering a rent-to-own agreement, a potential buyer should:

1. Check the seller’s credit report. Look for potential warning signs that the seller is in financial trouble, such as delinquent accounts or a large amount of outstanding debt. Even after a satisfactory credit check, a potential buyer who currently lives in the home should still pay attention to any warning signs that would indicate that the seller is in financial distress. Some examples include phone calls from debt collectors and suspicious-looking notices that are sent to the house.
2. Recognize that the seller could lose the property during the rental period. This could occur for any number of reasons such as if he or she is unable to make the mortgage payments, a tax judgment is placed on the property, he or she goes through a divorce, is being sued, and so on. If the seller loses the property, the potential buyer loses the possibility of buying the property, forfeits the extra rent paid and will have to find a new place to live. There is one possible exception: if the home becomes bank-owned through foreclosure, the bank might consider selling the home as soon as possible to the rent-to-own buyer in order to avoid the hassle of maintaining and marketing the property to a different buyer. In this case, the rent-to-own buyer would have to decide whether the purchase is feasible at the new date.
3. Ensure that the lease option clearly states who is responsible for various types of maintenance or repairs. This agreement should also specifythe types of changes or improvements (if any) the potential buyer is allowed to make to the property during the lease term.
4. Be sure to enter a “lease-option agreement”rather than a “lease-purchase agreement”. The former grants the option to buy at any time during the rental period,while the latter requires purchase by the end of the lease period and has legal ramifications for backing out.
5. Do market research and obtain a home inspection. This is how you can ensure that the home purchase price is fair before signing a contract.
6. Be aware that if the seller is unscrupulous, he or she can refuse to sell at the end of the lease-option period. This means that all the above-market rent money you’ve paid will be lost. A seller may also try to back out of the contract if the real estate market has appreciated rapidly and the property significantly increases in value. Of course, neither of these actions is legal, but if the buyer doesn’t have the financial resources to hire a lawyer, there won’t be much recourse against a shady seller.
7. Understand that if the market declines, the buyer will still have to pay the higher price stipulated in the contract to own the home. However, if the price is too high, the lessee can just walk away and shop for a different property. However, the buyer will lose that portion of the rent that would have gone toward a down payment, so it’s important to do the math necessary to determine whether walking away is the best option.
8. Talk to a mortgage broker and ensure that you’re in a position to buy the property. This is because even if the lessee decides to buy the house, it is possible that he or she will not qualify for the mortgage loan required to make the purchase. Finding this out before entering a rent-to-own agreement, therefore, can save a lot of grief down the line.
9. Obtain a condition of title report. This can help a buyer learn how long the seller has owned the property. The longer the seller has owned it, the more equity and stability he or she should have built up in it.

Conclusion
While rent-to-own arrangements can have many potential pitfalls, they can be a win-win situation between a trustworthy seller and a prudent, financially responsible buyer. If you can find an arrangement that you can agree on and a house that you’d like to own one day, this could be the perfect way for you to step out of your apartment and put down some roots.

Posted in Rent to Own | No Comments »

12. February 2012 by Kristian Alekov.

You’ve just bought the home of your dreams, signed the contract and packed the moving van — you’re all set, right? Not if you haven’t sold your current home first. So you put it on the market and you wait. And wait. And wait. In many cities where it makes more financial sense to rent than own, buyers may simply not be interested. In others, buyers do come along, but they don’t have enough money saved for a down payment or their credit isn’t good enough. How will you ever sell this house?

For many, the rent-to-own home may be the best option. Also called a lease-to-own house, the process works similarly to a car lease: Renters pay a certain amount each month to live in the house, and at the end of a set period — generally within three years — they have the option to buy the house. Each month of rent they pay is income for the seller, while a portion of it goes toward a down payment to eventually buy the home.

Both renters and sellers need to be very clear about the contract they draw up before they agree to this arrangement. Renting-to-own has advantages and disadvantages for both parties. Sellers who have already bought a new house will have relief from paying two mortgages at once, and in a slow housing market with many homes for sale, this may be their best option. Buyers who can’t yet afford a house may be able to get one more quickly.

Process Involved in Rent-to-own Homes

So your house has been up for sale for months, and you can no longer afford to make mortgage payments on both your old and new homes. You’re desperate to sell but don’t want to lose money. Now may be time to consider making your old home a rent-to-own property.

Before entering into an agreement, sellers have to decide the sale price and rent they’ll charge for the house. Both amounts are subject to negotiation, just as a regular sale would be. But sellers and buyers need to remember that once they sign an agreement, the sale price of the house is locked in until the end of their rental term, between one and three years. Even if other housing prices rise or fall during that time, the original agreed-upon price is final.

Renters also have to pay an option fee and then a rent premium. The option fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn’t buy the house, the option fee becomes income for the seller. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.

Here’s a typical example: The house is worth $200,000, and typical rent would be $1,000 a month. Someone who’s renting to own might pay $1,200 a month in rent and then receive a $200 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $7,200 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $12,200 for a down payment.

This is a valuable alternative for buyers who otherwise wouldn’t have the credit score or money saved to acquire their own home. And the sellers, eager to relieve themselves of the burden of the old home, earn this money whether or not the house sells once the leasing period expires. If, at the end of the contract the renter can’t or chooses not to buy the house, the seller keeps all the money.

As with any business contract, there are mutual risks and disadvantages involved for both parties. What if someone else wants to purchase the house for a higher price than originally negotiated? Who’s responsible for fixing the leaky roof in the middle of the night? Read on to discover the advantages and disadvantages for each side.

What’s in a Name?

There used to be a distinction between a lease-option arrangement and a lease-purchase deal. Lease-option meant that at the end of the term, renters didn’t have to buy the house. They were contractually obligated to buy it in a lease-purchase deal — whether or not they could afford it. People now use the terms interchangeably, so be clear on exactly which contract you’re entering into [source: McLinden].

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11. February 2012 by Kristian Alekov.

Given the pros and cons for both buyer and seller in a rent-to-own deal, both parties should also consider alternatives to this transaction.

Wraparound financing is an alternative often used where the seller has a mortgage on the home and the buyer has sufficient income but, for a variety of reasons, is unable to obtain a mortgage. The buyer makes a down payment at the time of the sale and signs a promissory note to the seller for the remainder of the purchase price, plus interest. The buyer then makes monthly payments to the seller, who uses that money to pay off the existing mortgage. This type of financing saves each side closing costs and allows the buyer to make more money by charging an interest rate slightly higher than that of the existing mortgage. Of course, both sides remain vulnerable: The seller needs the monthly payments to pay off the mortgage, and even if the buyer pays on time, the home can be foreclosed on if the seller does not make mortgage payments [source: Kass].

Under a land installment contract, the seller agrees to transfer the title to a home and the property it sits on only after the buyer has met certain conditions specified in the contract, typically the payment of the purchase price plus interest. This type of agreement is commonly used where the buyer is capable of making only a small down payment and smaller monthly payments. In this situation, there is no mortgage, or the existing mortgage is being paid by the seller, who must pay it off before transferring title to the buyer. The buyer should ensure that the seller does in fact own the property before entering a land installment contract. As with rent-to-own, the buyer is typically responsible for repairs to the property and may also be expected to pay property taxes and homeowner’s insurance [source: Southeastern Ohio Legal Services].

Better Off Investing?

There are several ways in which a renter could invest the money that ultimately goes toward the down payment in a rent-to-own deal. Based on the previous example, the renter would make only about $350 to $450 by investing the $12,200 in fees and premiums in a savings account (average annual percentage yield: 1 percent) or three-year certificate of deposit (average interest rate of CD: 1.2 percent). Investing the money in stocks or mutual funds could significantly increase the renter’s nest egg, which could then be used to make a larger down payment. Such a return — which, unlike that of savings accounts and CDs, isn’t guaranteed — would turn the renter’s $12,200 into $14,640. For some renters, the ability to lock in a home’s price in a rent-to-own deal is worth passing on other investment opportunities [sources: Bankrate, Dow Jones Indexes].

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