Is ‘Rent to Buy’ Legitimate?

Definitely! In the Australian Census forms there is a question regarding the dwelling in which you live. Of the 7 choices, choice 3 relates to dwellings “being purchased under a rent/buy scheme”. This shows the recognition by the Australian Government of ‘Rent to Buy’ in the home ownership market.
Do I Need To Be Working?

Yes! You should have a secure and regular income but it’s quite okay to be self-employed. You need to be able to afford the weekly or fortnightly repayments and already have a little money saved towards buying a house to cover your small deposit and some legal costs.

How does my Rent go towards purchasing my home?

An agreed portion of your weekly payment is called the ‘option fees’ and is treated as a payment toward your house. This is regarded as the deposit for your bank loan and establishes a sound financial record of payments to the potential lender.

Will I need the same size home loan?

Because the total credits or ‘option fees’ you have accumulated is money you don’t have to borrow, it means the rent cash back credit is in fact actively paying off the principal amount of the loan you’ll require. Reducing the amount you will need to borrow.

Will it make sense to renovate if at my cost?

Should you choose to renovate you will need to get the owner’s permission up front. This can be built into the agreement and should be discussed with the owner so that the agreed improvements can be recognised as part payment on the house.  It may even be agreed to be part of the deposit.  While it would not be advisable to do structural renovations at your cost, any improvements will increase the market value of the property and with it, your equity in the home. This increased equity is taken into consideration when it will have a new valuation done by the lender when you eventually do apply for your loan.

How much Deposit will I need?

This is usually $10,000.  If you agree to do renovations as a part of the conditions set in an agreement then this can count towards a deposit. In that case the deposit may be less than $10,000.  You will have the ability to negotiate this with the owner in the beginning.  Remember your deposit is a credit towards the eventual purchase of your home, so the more you can afford the better. It is usually a non-refundable fee, that is the owners advantage for the long settlement terms that they give you but this may also be negotiated.  At Prosperity Management we have a list of qualified buyers, so we can work with the owner to find another buyer should you decide that you are unable to purchase the property. Of course new contracts would be made to suit the arrangements with the new buyer.

How much will the Rent be?

That depends on the value of the property you choose to purchase. The repayments however will be ‘mortgage size’ repayments being higher than normal rent with an agreed portion to go towards the house sale price at settlement. This will allow you to get used to paying a mortgage size repayment each week, and know that it’s manageable.

How do I know I will one day qualify for a home loan?

We help to prequalify you which means we have seen the evidence that you can meet mortgage size repayments for a certain size house loan. Our  team of morgage brokers establish the criteria for this assessment. We can also help determine when your credit rating will improve for you. 

How do we work out the settlement time ?

Usually we would expect settlement to take place anywhere from 12 months to four years. The time will largely be determined by how long you need before you can get an approved bank loan.  The purchase price set by the owner will also need to take into account the extended settlement date.  This is all a part of the negotiation.

Is this arrangement recognised legally?

Yes! we can recommend a solicitor or you can choose one who preferably understands ‘Property Options’ contracts . All agreements are legally binding contracts prepared by solicitors.

Who will own the Property during the Rent to Buy period ?

You will be able to treat the property as your own but until the purchase option and settlement are complete, the ownership remains with the seller. They cannot sell or pass on the property until your option is excersised or released. In fact the seller is locked in!  You can choose to excersise the ‘Option to buy’ earlier if the owner agrees, but the seller can’t change their mind about selling to you.