Rent-to-Own Real Estate Deals - Beware!

Rent-to-own contracts that substitute for mortgages and conventional home loans are enjoying a surge in popularity in several regions of the country. The slumping real estate markets in parts of the U.S. fuels these deals, where homes can sit on the selling block for months at a time.

Add to this the recent tightening of rules and regulations for bad credit loans and a near perfect storm has been created for rent-to-own scenarios. It sounds like a great way for home sellers to speed up the sale of their home.

While the benefits of rent-to-own arrangements may seem strong, both the buyer and seller need to be aware of problems that can result from poor planning.  Get the complete story here:

Incentives to Woo Buyers and Sell Your Home

Flashy incentives like a new car parked in the driveway or a flat-panel television hanging in the den might sound like a good way for home sellers to woo buyers in a dismal real-estate market. But when it comes to actually enticing someone to buy a home, it's the more practical perks that count.

Effective incentives address what's on the minds of potential buyers — the overall cost of the home and the monthly payments they'll have to manage.

Incentives can be considered when the home is first listed, as a way to distinguish it from the start.

They can also be added when the home hasn't sold in two or three months, as a way of enticing a buyer without lowering the price. Or the incentives could arise in negotiations, when a buyer needs that one extra little nudge to commit.

Make no mistake, the location and condition of a home are going to be its main selling points. But if sellers "put on their buyer's cap" and really consider what issues the buyer might have, it could make all the difference.

Here are six of the most common incentives being used in markets today.

How Much Home Can You Really Afford?

Most people take for granted how much home they can afford.  If the real estate agent or mortgage professional tells you that you can get up to a $300,000 home, do you argue?  Most times not.  Most people don't question it.  But you should understand it and make sure you don't get in over your head in mortgage payments.

There are several factors: credit score, total assets and what's known as your "debt-to-income" ratio (DTI). Your DTI is extremely important, yet most people have never heard of it. In simple terms, DTI is your total "minimum" monthly debt payments divided by your gross monthly income. Here's a good rule of thumb: the lower your DTI, the better.

What is "minimum monthly debt?" It's the amount you are required to pay on a monthly basis, like your car payment, student loans and credit card payments. If you pay more than the minimum amount on your credit cards, this does not count against your DTI, since only the minimum amount you're required to pay is included in the total.

Keep in mind that minimum monthly debt simply means the minimum you have to pay each month. Even if you owe $5,000 on a high interest credit card, if your minimum monthly payment on that card is $100, that is what goes into figuring your DTI. But be careful. Only paying minimums can actually make some debts grow larger.

Go over all your expenses and debts with your mortgage professional when buying a home. Make sure you understand how your home affordability is calculated. By planning properly, you'll be in the best financial shape to make sure your dream home doesn't turn into a nightmare.

If you have any questions about this article (or any other we've posted here), please leave us your comment.

June Housing Starts up 2.3 Percent

The pace of home construction rose 2.3 percent in June but building permit activity, a sign of future construction plans, sank to its lowest rate in 10 years, signaling further weakness in the listless housing market.

Housing starts set an annual rate of 1.467 million units in June compared with a revised 1.434 million unit pace in May. Economists had forecast June housing starts to drop to a 1.45 million unit pace from the 1.474 million unit rate originally reported for May last month.

This latest data comes a day after another report indicating that home-builder confidence is sinking as mortgages become more difficult to obtain, with banks tightening their lending standards.

The continued sad news in the housing sector could make this the best time to buy a home in over a decade.

Contact us for more information.

Still Better to Buy a Home  

In areas where the monthly cost of owning is a big premium over the cost of renting, the long-term approach still shows that owning produces a higher lifetime standard of living than renting.

Let's say you bought a house for $150,000 with a 20% down payment and a 30-year mortgage at 6%, it would cost $8,634 a year for the mortgage and about $7,500 a year for taxes, insurance and upkeep (based on 5% of market value).  The total out-of-pocket cost would be $16,134 a year.

Long term, this would put you way ahead of a renter, even though the same house could probably be rented for about $15,000 a year, or $1,250 a month.

The benefit comes from the decline in the real cost of the mortgage.  Even modest inflation will cut the effective cost of the mortgage dramatically over 30 years.  And then the cost disappears.  The renter, meanwhile, faces a lifetime of rising rent bills.

Of course, in real life the actual numbers will differ. But as long as inflation whittles away the purchasing power of the mortgage payment, the odds will favor the homeowner over the renter.

We'd be happy to run the ACTUAL numbers for you to see for sure, but in most cases, inflation will protect us from all but the worst housing markets, if we give it enough time.

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