Understanding the Paperwork
Previously, I discussed what should be done once you have been approved. I shared a few tips that would help your move in run smoothly. One of the tips I gave was to Draft All Documents: Rental Agreement, Sales Contract, Option Agreement, and Memorandum of Option. Today, I am going to help you get a better understanding of these documents. Don’t worry, it’s not that complex or scary, but it can seem overwhelming if you don’t take it one piece at a time.
Rental Agreements
Basically it’s an agreement between you and the landlord that defines the terms of the rental period. Here are some of the basic points it covers:
- How long you can rent the home
- Any other provisions, such as late fees, bounced check fees, rental agreement violations, etc.
- And, of course, the required lead based paint language which alerts you to a potential hazard
Option Agreements
The Option Agreement gives you, the tenant-buyer, the right to buy the seller’s home at a later date. It is binding only to the seller, meaning that the option agreement prevents the seller from selling the home to anyone else as long as the option is valid, but you are not obligated to buy the home. Some of the basic points it covers includes:
- The amount of the option fee, if any
- A statement that indicates your option fee is non-refundable if you choose not to purchase the home
Sales Contract
This contract outlines and details the terms and conditions of the purchase of your home. For the most part, if you are working with a real estate agent, you will be using his contract. Most states require real estate agents to use their state approved sales contract. Here are a few of the basic points the Sales Contract covers:
- The agreed upon purchase price
- In some states, there are very specific clauses that must be included in your sales contract (California has many)
- What type of title insurance will be provided and who will pay
Memorandum of Option
The Memorandum of Option is a document that gives the world notice of the option the seller is giving to you, the tenant-buyer. I do recommend that you record a Memorandum of Option at your local clerk’s office, when possible, because its purpose is to protect you. These are the basic points the Memorandum of Option covers:
- When the option is valid
- Who the parties are
- Legal description and physical address of the property
- It may contain other provisions
- It needs to be notarized to be recorded
This gives you a basic understanding of what each contract is and some of the basic points of each covers. In order to get a better understanding of each you can read Rent-to-Buy. Rent-to-Buy covers the basic points of what is covered in each. It also shows you what is not covered in each contract and key clauses each document may have. CLICK HERE to learn more about Rent-to-Buy!