Rent house for year then own it?

We like a house nearby. (400k)

We went to the bank and can only get finance for a 330k offer (we would have only offered 350 anyway).

I made the 330k offer and rejected no problems.
RE rand back next day and said owner cant accept 330k but has fiven option of renting house out for the year then buying it for 360k (we would be likely approved in a years time for that amount).

SO - it would be a contract, 380k ourcahse but rent at 400 a week for 50 weeks - $20000, then 380-20k is a 360k buy?

Sounds all good but wants 20k deposit and written contract....deposit concerns me.

Was thinking of doing it but having a "subject to approved finance" in 12 months, that way i dont lose deposit if i am refused again

thoughts?

 

I won't do it.

You should do your risk assessment using various factors that can influance it.

 

Search "rent to buy" and "vendor finance" both here and on google. There are loads of ways to structure a deal like this, but usually the terms put the new buyer at risk (because they are most commonly uneducated buyers who cannot get bank finance) so make sure you aren't locked into something that puts you at risk. The big things to remember:
1 Don't pay over market value
2 Don't put up more than you can afford to lose
3 Don't commit without an out clause if the deal depends on you getting finance in the future or any other "ifs"
4 If you can't get finance in 12 months the contract could propose a vendor finance term of say 5 years (or even 25 years) but make sure the interest rate isn't too nasty.
5 Get a good property solicitor (not a cheap conveyancer in this case) to write/review anything you will sign

 

Thanks for quick replys.
Have no issues with this.

Was thinking accepting 380K with renting for a year (20k) off price...so then pay the 360 *subject to getting approved finance*.

Interesting, will speak to solicitor later.

 

spoke to solicitor and he said he doesnt usually like this situation.
Wants to see it in writing but said if i do do it make sure there is an out clause in it and subject to approved finance in 12 months.

 

This is essentially a vendor finance arrangement. I've seen a few of these over the last 18 years. I've yet to see one that worked out well for the purchaser. Many end up walking away with a significant financial loss.

Most lenders won't want anything to do with it and the few that do either charge extra or they will assess your application very conservatively with a high chance of decline.

It's also likely that the vendor won't handle that $20k contribution properly and lenders won't recognise it as a contribution to the purchase. You'll effectively just be paying a high rent for the next 12 months. I've seen this several times before.

I'm currently trying to help someone finance out of one of these contracts. I've spent a lot of time canvassing lenders that would find it acceptable. It's taken a lot of effort and it still feels like I'm going around in circles. Working at 10pm last night I almost told the client that I wasn't the one who put them in this situation and to figure it out themselves and stop wasting my time. In future with these sort of deal I'm simply going to say upfront I'm not interested.

Today I'm feeling a bit angry and frustrated, because of this type of deal.

If you think this house is going to be worth $380k in a year, then offer $380k with a 12 month settlement. Then offer to rent it at a fair market rent and save the $20k yourself in the meantime. Be aware however than nobody is going to give you a 12 month finance clause.

 

If they wont accept 350k now why accept 360k in a year? Works out to be less for them.

 

How does it work out less for them?

 

Inflation would be $4500 for the year.
Then there's the opportunity cost of what they could have done with that money NOW and not in a year's time.
Also.. interest payments etc.

 

If i did it and got rejected finance in 12 months still i lose my deposit.
I would rather do subject to finance contract in 12 months. doubt he will though.

 

agree with the others look up the terms stated vendor finance etc.
not a good deal for you. plenty of other options/properties to buy on your terms. wise and essential for you to get good legal advice.

 

Lots of people buy a property without a finance clause. It is a risk, but you can mitigate it by speaking with a broker to assess the magnitude of that risk.

This involves asking for a bit more than, "Can I get the money?" You need to get a feel for what sort of margins there are and risks assessments of what changes over the next year might affect the outcome.

 

Walk away. Wait until you find a house you can afford.

They might not be able to find a purchaser and come back to you for 330 anyway by which time you might have found another house you like more.

 

Worth considering I think.

 

Looked at 2 other houses last night...the other one is a lot better.

Usually vendor finance...you lose your deposit if you cant come up with the funds in agreed time.

Is it possible i do a "pay remining figure subject to finance" or not.

Owner is open to 2 years renting before buy as well if we need.

 

Vendors are sounding a little desperate to me. That means, unless there's another buyer (and it doesn't sound like it, does it?) you hold the cards. Pay what you can afford and avoid risky finance. That loan, and others, need paying off.

 

They are opposite of desperate to be honest.
No, no one else is interested.
Does suit our needs.

I couldnt afford it until one more year.
so cant see any real issue if rent it off them for year and buy it in 12 months but i want a SUBJECT to APPROVED FINANCE clause in there so i dont lose deposit

 

Man in legal fight after losing thousands in 'rent-to-buy' scheme there are many cases like this 1, so be careful.

 

thanks for link.
want to get things happening in the next 48 hrs.

Vendor making it sound easy.

20k deposit.
Sell for 380 and then pay a year of rent at 400 a week which is 20k....then goes down to 360k.
With 20 deposit goes down to 340k and get bank finance and own.

 

Dont see why the vendor would accept that.

What will change in a year that means you can get a loan you cant get now?