For those of us who dream of owning their own home, one of the most frustrating and heartbreaking times is being told by the banks that we don't tick all their boxes in order to be considered for a home loan.
Those who do not meet the banks criteria often:
Are unable to come up with the substantial deposit
Cannot prove a regular income (the self-employed)
Unable to demonstrate a credit history
Have a blemish on their credit record
However, there are innovative ways to achieve the goal of property ownership that do not involve applying for a bank loan (until you are in a position to do so) and do not require the same high deposit that the banks demand. What is required though is the ability to meet regular weekly or monthly payments.
The -Try Before You Buy' Strategy
This technique, espoused by acclaimed property investor, Australian Rick Otton, is one of the most creative, yet little known, ways to become a home owner.
Try before you buy can serve as a stepping stone between renting and buying. First homeowners can -try before they buy' and lease the property a year or two (or three) years before committing to buying the property.
In its simplest form, it relates to a legally documented transaction, with the property leased in exchange for regular payments, and with the option to purchase at a nominated price, at a nominated time, in the future.
Because they are not obligations to purchase, the potential purchaser is given the opportunity to -try before they buy'. They have the option to terminate the agreement at any time with the return of the property.
This strategy is ideal for renovators who want to control property for a short period of time in order to renovate it and then resell and first homebuyers who want to get into the property market without large up-front costs
This gives the buyer the flexibility to change their mind down the track - perhaps about the suitability of the house for them or the neighborhood in which it is located.
However the best reason to enter in a rent to own arrangement is that you know the price you will be buying at, even if it is several years into the future. This gives you the time to continue saving towards a deposit, while living in the home that you will eventually own.
As part of the agreement is often necessary to make a non-refundable deposit, and the rental amount may be a little higher than the going rental rate for a similar property in the same area. Depending on the terms of the agreement, a portion of the monthly rent paid may be counted towards the deposit on the property.
At the end of the agreement period you are still not in a position to purchase the property, you may request the creation of a new agreement, but the owner will have the option to revise the purchase price as part of the agreement.
The try before you buy strategy has a lot going for it, particularly if you fail to meet the mortgage requirements of a traditional lender. By being able to demonstrate regular payments while in the re arrangement, you are able to meet at least one of their criteria. By being settled in the home you plan to eventually own, you will acquire a home-ownership mindset and have built up a deposit that you can now go to a bank and start the traditional process of getting a loan.
By Rick Otton
Rent-to-own is just one of the strategies that Rick Otton shares in his recently published book -How to Buy A House For A Dollar', available at good bookstores now.
For more information see: How To Buy a House For $1
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