When it's time to buy a home, it's easy to get swept away by deals that seem too good to be true. But the hard truth is there's a lot to look out for when buying a home, and there's no faster way for the American dream of homeownership to become a horrifying nightmare than to be caught off-guard. For that reason, smart homebuyers stay away from risky buying options.
So what are these risky ways to buy property, and why should you steer clear? Our expert Realtors get real about the ways some homebuyers are gambling with their future.
Rent-to-own contracts can be extremely tricky, and some find themselves trapped in an agreement they didn't fully understand. It's essential to fully comprehend a rent-to-own agreement, including how much of your rent goes toward purchasing the home, your obligation or option to buy, and how long you have to decide whether the home is right for you. It's also vital to understand whether you are responsible for repairs and other improvements. More than that, rent-to-own lease agreements can trap buyers into a sale price of a home that loses market value, and in some cases, tenants may not qualify for a mortgage — making it impossible to purchase the home when the time comes.
Some buyers will be delighted to enter an agreement with a seller who offers financing. That means you don't have to take out a loan with a traditional mortgage lender. This can be risky for buyers, although it may appear to be a good deal. Sometimes the home's value is far below the price the buyer is paying, or the interest rates may be substantially higher than a traditional mortgage lender might offer (in particular these days, when mortgage rates are at record lows). Plus, typical consumer protections will not be in place, putting your investment at further risk. Before you seek out this option for homebuying, make sure you work with a Realtor and a real estate attorney to ensure your interests are protected before purchasing a seller-financed home.
Down payment loans
Amassing a down payment can seem an insurmountable task for many buyers. That leads some to seek out alternatives, such as taking out a loan for a down payment. But there are drawbacks to keep in mind. For one, a down payment loan raises your debt-to-income ratio, which is a key indicator of your ability to pay your mortgage loan, and may prevent a lender from approving you. More, mortgage lenders need the assurance that you plan on making your loan payments — which is why they want to see you have skin in the game. Without a down payment of your own in place, a buyer has little motivation to pay their mortgage. You'll also face a higher level of debt with a down payment loan, which can increase your risk of not being able to pay your mortgage.
If you have difficulty pulling together a down payment, your trusted lending institution may be able to help, and you may want to explore other low down payment options such as FHA loans, VA loans and more, which you might be eligible for if you meet certain criteria.
Online services and other technology have made it easier than ever for owners to try to sell their properties without support from a trained real estate agent — but that can mean big trouble for home buyers. For one, scam artists are skilled at using the online world to their advantage, leaving some would-be homebuyers in dire situations. From homes with defects that are not disclosed to entering into agreements without contingencies that protect you and your earnest money, to losing a heap of cash to a scam artist for a fake listing, there are so many ways to take advantage of unsuspecting buyers. Simply put, buying a home that is for sale by owner can be risky. If you do decide to go this route, be sure to get home inspections, a real estate lawyer who represents your interests and a Realtor who will look out for your wellbeing throughout the process.
Just as buying a home that's on the market for sale by owner is risky, so is homebuying without a Realtor on your side. Buying a home without a real estate agent may sound easy, but Realtors offer so many advantages and insights into the process, it's silly to go it alone. More, Realtor fees are typically paid by the property seller, so their services are available at no cost to the buyer. For understanding the market, knowing how to negotiate a deal that's right for you, ensuring the property has been inspected and having peace of mind in your investment, there's no better way to buy a home than with the expertise of a Realtor. Go without and you truly are on your own.