When a vendor (seller) of a house provides the finance to the buyer to buy his house the process is known as Vendor rent to buy. The rising rental rates make it difficult for the people to save money to buy their own home. In Australia the rent forms over one third of a person’s earnings. The families hardly ever realize the dream of owning their homes.
The people who look for Vendor Finance in Australia are generally honest and hardworking people but do not qualify for conventional home mortgages due to the strict lending rules of banks and financial institutions. The home buyer has very little or no deposit, no savings or income record, or has a bad credit history making them unfit for traditional home loans. Some others may have credit worthiness but unable to deal with the lenders as they do not have proof of stable income. This is because they are either self employed or have part time or temporary jobs.
Vendor finance rent to buy is also seen as a good investment opportunity for the investors who would like to invest in real estate. This is because the property creates a steady and positive cash flow for the investor. This is a positive cash flow in the sense that the incoming cash flow exceeds all the expenses relating to the property such as mortgage payments, maintenance and repairs, rates and taxes, and any charges or fees involved in the transactions.
The vendor rent to buy has wide acceptance from the Australian people as it satisfies all the needs of the home buyers and helps them to get out of the rent trap when they do not get bank finance for buying houses. Vendor rent to buy is nothing but refinancing of the house purchased through the vendor finance arrangement. This is a bridging system for the buyer to change from a person ineligible for bank mortgages into a good case for bank finance. When the purchaser has built enough equity in the house bought through the system of vendor rent to buy he can go for a bank loan as he becomes eligible as he has improved his credit situation through the home improvements, regular payments and the value appreciation of the house.
The documentation for vendor rent to buy is a legal agreement for refinancing the property by the purchaser. This is a refinancing deal between the purchaser and the vendor with specific terms and conditions as agreed to by both parties. The duration of such agreements is generally between 2 to 5 years as a temporary arrangement for the buyer till such time he becomes eligible for a traditional home loan to buy the house. This arrangement also involves less risk to both buyer and vendor of the house. By this time the purchaser would have made the payments as per the agreement and is ready to buy the house using bank finance. If the buyer decides not to make the purchase according to the agreement he has signed, he forfeits all the monies paid to the vendor. The purchaser occupies the house immediately after signing the agreement. The vendor has the responsibility to pay taxes for the house.