Try before you buy home loans

Try before you buy home loans? Surely not! That’s right folks there are Australian home loans that allow you to rent the property you are interested in buying, before you actually sign the dotted line.

Rent-to-buy, which basically is the concept of renting a property for a certain period, usually a number of years, with the intention of buying the property.

This method of home ownership allows those who may not have enough saved for a deposit, to save while they rent. It also gives you time to get accustomed to the property and determine what needs fixing or what doesn’t.

Be aware however that this option isn’t available on all properties, so you will have to find a home that is advertised as a rent-to-buy home. There are a number of agencies that specialise in this method.

Essentially there are two parts to this option, renting and buying.

Renting: This is done in much the same way that you would normally rent a property. You will need to sign a tenancy agreement, pay a bond and then pay rent for the term of the lease.

Buying: You will need to sign a separate agreement called an option deed, or option for short, which is an obligation-free agreement that you have the right to purchase the property at the end of the period.

Before you sign the option deed, you will need to agree on the price of the property. This way if the property value increases, you keep any capital gain. This can also be used as a trade-off for the option fees being non-refundable.

You will then need to pay an up-front option fee in order to secure this right. In addition you will need to make ongoing option fee payments for an agreed time period at the same time rent is paid.

The great thing is that if you choose to go ahead and purchase the property the option fees paid are credited against the purchase price of the property and can be used as a deposit. Be sure to remember that if you decide to not go ahead with the property purchase, these fees are usually non-refundable.

Things to be aware of before opting for a rent-to-buy home

• Rent-to-buy schemes are often targeted at lower income earners, those without deposits or at borrowers who have had their home loan application rejected from a bank or mortgage lender.
• You have no rights, other than as a tenant, to the property during the rental period so the scheme is a higher risk to you. 
• You are not guaranteed a bank loan at the end of the rental period which means you could still miss out on buying the property and lose your rental credits and money already paid.
• If you miss payments or are unable to meet you rental obligations they may annul your option to purchase the property and lose your rental credit and monies paid. 
• Ask a solicitor that specialises in vendor finance for real estate to read over the contracts before you proceed with anything.

Shopping around is the best way to effectively locate a home loan that will work well for you. Use RateCity’s home loan comparison tool and mortgage repayment calculator to locate some great home loan options.

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