Rent to Own a House - Helpful tips
Many people have this question when they are
thinking of renting or buying a new home. They think, “we are
first time home buyers who
don't have a ton of money to put down on a Mortgage. We have an
opportunity with some people who are selling their house and are
willing to look at some rent-to-own house options and
then selling without a real estate broker. This intrigues us because
we can afford house payments but not the down payment. The question
is how much of our payment can we expect to go toward the house?
And, how should we go about negotiating. Who can give us information
about renting to own a house?”. Here are some tips:
The most important thing to remember when you
plan to rent to own a house is that any amount that goes toward the
down payment MUST be paid to the seller with a second check so the
bank or other financing company has a paper trail to determine the
amount to be applied as a down payment.
The best thing in rent to own a house is that
it doesn't violate the "due on sale" clause on existing
and so you are saved from unnecessary tension
Tips from Mortgage Brokers
Expert mortgage brokers suggest that the best
way to get your home is not actually rent to own, but rather an
actual Land Contract for the owner to sell you the land with a
balloon in 12 months. This way, you can build a mortgage history.
With a 12-month mortgage history, a few things happen. First, it
will no longer be a purchase, but a refinance which is much easier
to do with zero money, including closing costs.
Second, you can use the appraised valued
rather than the purchase price. This is especially good when you
know you have a growing area. Say your seller is willing to sell for
$80,000. Well, it is highly likely you could obtain a slightly
higher appraisal a year later. Usually, as a general rule, values do
go up yearly. So think cautiously before you decide to rent to own a
There are two possibilities of having a
rent to own home with a purchase
taking place in the future. The first is called a Lease Option. In
order to have a valid option, you must pay for it that is usually a
minimum of 1% of the purchase price. You in turn lease the property
for a said period of time, with an option to purchase within a
specific time period. If you do not exercise your right to purchase,
you forfeit your option money.
The second option to rent to own a house is
called a Lease Purchase. A lease purchase does not require option
money. As a buyer you can (depending on how the contract is
structured and the courts interpretation) walk from the deal without
obligation. However these contracts can become very gray area, they
are not specific enough for my taste. The contracts have to be very
specific. Suppose you decide not to purchase, (depending on how the
contract is structured and the courts interpretation) you can be
liable for damages.
When you decide to rent to own a house, seek
guidance in these matters: Should we take possession as joint
tenants, tenants by the entireties? Scrutinize carefully the things
that are in the purchasing of Real Property along with the current
value of the property. You should also be careful of the type of
mortgage (rates are expected to go up), the type of warranties from
a deed, the physical condition of a property and the condition of
the title while you search to rent to own a house.
Advice from a Landlord
Many landlords who have sold a property or two
as a "rent to own", here's what they say: As far as negotiating,
enter the deal as though you were buying outright. That means, get a
qualified inspection on the house before you rent, negotiate a price
that you will pay at the end of the rental period, and have it all
put into the contract.
Be sure you will qualify for a loan as of the
date you will actually purchase the house. If you don't qualify, the
landlord can keep all the money you've paid in as "rent" and you'll
Most landlords/sellers will charge you the
base rent plus a predetermined monthly amount when you are renting
to own a house. You can negotiate any type of a deal that works for
both you and the seller. But remember, if the deal falls through on
your end, the landlord keeps all.
Rent to own can be enticing for potential
homeowners who can afford monthly payments, but not the hefty down
payment. They are a risk, however, because one never knows what the
market will do. If the market "falls" you may be stuck buying a
house that is not worth the amount you've agreed upon. If the
homeowner is willing to do a rent to own a house, and doesn't need a
large lump sum of money right away from the sale, he may also be
interested in holding a mortgage for you. Ask him if he'll carry a
mortgage for 5 years, with a balloon payment at the end. That will
give you more time to survey the market, and you'll be building
equity right away.
Mortgage Banker's View
Expert Mortgage Bankers are of opinion that
the amount of money that you can expect a lender to recognize as
going towards your down payment is the amount of rent that you paid
over and above the fair market rent for the property. In other
words, if you pay $1,000 per month and the fair market rent is only
$500, $500 per month would be applied towards the down payment as
far as a lender were concerned. The way the fair market rent is
established is by having an appraiser (licensed), do a comparable
rent schedule and determine independently what the rent to own a
house should be.
Also, you should make sure that you keep very
detailed records regarding everything that you do: keep a copy of
virtually every piece of paper that comes through your hands and
every check which is cashed or deposit slip. Believe me, it may seem
like a lot of work, but your Loan Officer will be able to make the
process much more easy when you opt to rent to own a house.
If you are confused with the rules regarding
how to rent to own a house, consult a Real Estate Attorney. The fees
that they will charge should be just a fraction of the commission
you would normally pay, and your interests would still be protected.
The Pros and Cons of Home buying
Is rent to own a home a better option? When do you buy and when do
you rent? There are a number of things to consider... from what can
you expect when you buy a home to how renting differs from home
ownership and even how your personality type dictates whether you
should be an owner or renter.
Nothing can make you feel more secure than owning your own house,
unless buying a home will create financial problems of its own. But
are you the kind of person who wants to be free of responsibility,
someone who prefers to be able to move in a relatively quick
timeframe? If you are, owning a piece of property may not suit you.
Mobility is part of renting. Freedom to take the next job or move
for a relationship is easy to come by when you rent a house. And
when you do move, there's often more choice of specific location,
and price, when you seek rental housing
When you rent to own a house it is for sure that you are not tied
down--and don't have to assume financial responsibility for their
living space. This is of course a big difference from home
ownership: who does the work.
In rent to own a house you don't receive the joys of making a place
truly "your own," but you do have limited costs in renting.
Landlords are responsible for general upkeep and safety, allowing
you to focus on the fine points.
Financial pros and cons
Compare which is better; rent to own a house or buying -figure your
monthly payments if you were to buy. Compare your monthly rent to a
calculation of the following: purchase price and down payment of
your home, your annual income (and debt), property tax rate, home
insurance rate, interest rate and length of loan. For a better look
into your costs, it pays to contact a home-buying specialist.
No discussion of home ownership is complete without considering the
long-term benefits of owning. What your house will be worth when you
sell depends on the state of your mortgage and the housing market,
Once you've added up the pros and cons in your own ledger, you can
make a positive decision on whether to rent to own a house or be a
Supatra Chowdhury, is an international research scholar and a part
time content writer. She has written high quality articles for many
websites and has also done editing and copywriting. Ms Chowdhury
works for Freelance Writer organization, and is a contributor to