Rent to buy: the best alternative to mortgages

The Rent to Buy “magic formula” allows you to live in a property immediately, as if it were for rent, but the fee will be considered as a down payment on the purchase price.

The “Rent to buy” contract allows people to buy a house in a moment of difficulty in obtaining mortgages; at the same time constructors and private owners will have more possibilities to sell unsold properties. As a matter of fact, this kind of contract allows, people who’d like to buy a property but with a small sum of cash in their hands, to live immediately in the house upon payment of a fee which in part will be considered as a downpayment on the purchase price. At the same time, the owner has the possiblity to secure a sale, even though the real estate market is currently very slow.

Advantages for buyers. The “Rent to Buy” contract does not oblige the future buyer to close the deal, but binds the seller to sell the property for the agreed price at the end of the agreed period, deducting part of the rent as a deposit on the price. According to this agreement, in fact, the future buyer can immediately get into the house by paying a rent a little bit more expensive than the standard market price, as part of the rent will be used as a payment of the price of the house. At the end of the agreed period, the buyer pays the last installment and the final deed can be signed, in order to formalize the transfer of the ownership. This way the deal is secured, without need for cash money and without applying for a mortgage to the bank.

No risks if the seller goes bankrupt. For this kind of contracts the law has imposed the transcription in the real estate registers. The transcription is an official document, stating that the buyer is going to finalize the purchase. This means that the owner can’t sell the property to anyone else, give a mortgage, or any other claim which would create problems for the future buyer. Not even any creditors of the seller may enroll mortgage on sale, or confiscate the property, because starting from the date of registration of the “Rent to Buy” contract, the property is “reserved” to the future buyer.

Contract terminated without refund in case of missed payments. If it was the potential buyer to change his mind, or to be unable to buy, he would lose the amount paid in advance, because the law gives the seller the right to retain all amounts received as a compensation for the missed sale. The contract will be terminated if the unpaid number of installments equals 1/20 of the total amount. This would allow the owner to get the eviction. Given the peculiarity of the contract, the procedures to clear the property should be faster than for standard rental contracts, but passing through a court will be needed anyways.

High fees and limited duration to avoid unexpected events. Generally speaking, to protect himself against possible missed payments, and to be sure that the potential buyer really wants to buy ,the owner will get a rental fee significantly higher than the average market price. This way an adequate compensation in case of missed sale will be guaranteed. Moreover, the contract should be time-limited: as a matter of fact, before the notarial deed is signed, all expenses for extraordinary maintenance are paid by the owner as in a regular rental contract. Only condo fees and routine maintenance expenses will be paid by the potential buyer.

It is notable that the Italian government has finally found a solution to give new life to the real estate market and has made the process of buying a home more affordable for everyone.

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