Has anyone here ever rented-to-own their home? I’m just exploring all my options to figure which will be the best in the long run. I know about owning and about renting, but now am trying to learn all I can about rent-to-own. How was the process for you? What were the unexpected concerns/problems? Would you recommend the same thing to anyone else who didn’t have enough of a down payment, or credit issues or not enough income?
I would recommend being very wary of any kind of deals involving no down payment or lease options and would recommend sound legal advice in such matters. Generally it is very unwise to buy property or a home without an adequate down payment - unless you are able to purchase the property for at least 20 percent below market value. This is because when the option period is up - typically three to seven years - you must either purchase the remaining equity of the property with cash or a mortgage and the option money that was paid in becomes the down payment. If the property is not purchased, the option money is forfeited to the leasor. If the option money is not sufficient for a down payment and other means of coming up with a down payment have not been secured, a lender will not mortgage the property.
One major thing to keep in mind is what is known as a “Due-On-Sale” clause which applies to any existing non-assumable mortgage. This would typically affect any lease option or land contract type deals. Ethically speaking, the current mortgage holder would need to made aware of any such deals and permission given in order to avoid having the entire principle becoming payable as a balloon. Of course, if the current owner holds the title outright, this is not a concern.
Just some thoughts, although definitely get good counsel before trying something such as this.
In Christ - J.M.J.
On a rent-to-own:
- Make sure it’s legal in your state. In some states, it is not legal to rent-to-own.
- Make sure you really want to own it. A home inspection is not a bad idea, with a real home inspector.
- Make sure that during the rental period, you are not responsible for repairs.
- GET IT ALL IN WRITING, AND DOUBLE CHECK IT FOR YOUR LOCALE.
- If all is well at this point, send in two checks every month: one for the “rent” and one for what’s being set aside for the “down payment”.
- What mapleoak said about “due on sale” and making sure you have at least 15-20% for a down payment if you will need to get a mortgage, depending on the area.
- Get renter’s insurance, just in case something happens to your stuff.
I don’t know a lot about rent-to-own, but I just wanted to comment on what Mapleoak said. While I am sure that everything above is true, it is possible to get 100% financing without all of the above strings attached. We financed our home 100%, and actually received cash back to cover closing costs. Our mortgage is a standard 30 year, fixed rate mortgage. Most of the time you will need to pay Private Mortgage Insurance if you finance more than 80%, but we have lender paid PMI, with a slightly higher interest rate, because the interest is tax-deductible, but PMI is not.
Of course this route is not for everybody, but it was the best option for us, as rent on something that would fit us would have been the same as our mortgage payment. Of course, when you rent you don’t have to pay for upkeep- something else to keep in mind!
Sure, you could get 100% financing…but not everybody qualifies, even on a subprime. For some people, the only way they will own is through a rent-to-own, or a contract sale with a carryback.
I would do a search on your states website they may offer downpayment and closing cost assistance depending on your income levels and the cost of the home.
For example in PA you can qualify through a program through the state from $5,000-35,000 downpayment and closing cost assistance.Any money you get up to 14,999 is forgiven at 20% a year. Also you get a 30 year fixed with 0 pts for 5.6-6.0%