Rent to own homes

What is Rent To Own, How Does Rent To Own Works and Rent To Own Homes Free Listings

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Rent To Own Homes vs Homes For Rent

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There are specific ways that you can begin to look at the right homes for rent while considering alternatives for the best options for your living needs. The homes for rent that are available can be compared with rent to own alternatives, all of which will provide specific options that will either help or hurt you financially. Knowing the difference between rental agreements and rent-to-own options can help you make the right decision when finding the right place to live.

Long-Term or Short-Term

There are people that are in transit with a place to live as well as in knowing where they want to settle. Rental agreements typically work better for those who aren’t sure if they are going to settle in a specific area. However, if you know you will be in a community for more than 2 years, then considering rent to own homes may work more efficiently.

Rent To Own Homes

Monthly Payments vs. Investments

When you are renting without the option to buy, then you are also looking at making monthly payments that go to the maintenance and care of your place. If you decide to move into a home that has rent to own options, then there is the ability to change into an investment. This will help you financially by building your credit and maintaining a space that will eventually become an asset. 

Contract Differences

The homes for rent that you look into typically come with contract agreements that require you to live in the space for six months to one year with a renewal agreement at the end. If you consider rent to own homes, this will differ by offering a long-term contract as well as an end-of-term option to allow you to transition into the final rental agreement. Understanding these differences can help you determine what works best for your lifestyle needs.

Conclusion

If you are looking to move, then considering homes for rent or a rent to buy contract is one of the options to weigh in. There are several differences between these two kinds of agreements, both of which affect lifestyle, finances, and the end results that you get. Understanding how to approach your move can then assist you with getting the right rental opportunities while allowing you to settle in one place.

Top 5 Rent To Own Homes Benefits

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If you are looking at real estate and want to make a simpler transaction outside of a mortgage, then you can consider rent to own homes. The reputation of the rent to purchase real estate is quickly growing in popularity, both for convenience and flexibility.

How Rent To Own Works?

The rent to own process begins with finding a home that you want that has the contract set up for leasing or renting the home. You will be able to set a time frame of how long you want to rent the home for. After this time frame, you will be given the option to buy the home and to move into a mortgage agreement. Typically, you will have the choice to move into home ownership or to find a different area to lease, dependent on your needs.

Rent To Own Homes

Rent To Own Agreement

When you begin the rent to own process, you will be given a contract agreement by a third party. Vendors, private sellers and third party companies are the most common areas that are selling homes with rent to own alternatives. The contract specifies how much you will pay, when your contract is up and where the specified amount of money will go to, such as a down payment for the home. You will also be given alternatives for maintenance and other smaller agreements with the vendors.

Rent To Own Homes Advantages

No down payment. A problem among those who are looking for a home is that they don’t have enough money for a down payment, making the mortgage difficult to get. If you want to buy a home but are a first time home buyer or don’t have the right amount for a purchase, then the rent to own home will provide more alternatives.

Fast equity growth. When you decide to get a mortgage for your home, you will have a set contract that takes out interest rates as opposed to the principal of your home, making it take longer to buy your home. The interest rates on rent to own homes are non-existent, meaning that the money you pay either goes toward a down payment or the purchase of the home.

Profit from appreciation. The contract that you set up before moving from the rental agreement into a purchase is required to be on lock down, meaning there won’t be unexpected prices or changes with your contract. This means that you can find more alternatives to find profit while not being at the disadvantage of losing money during the closing.

No restrictions on buying. Because you are renting a home first, you don’t have to go through the lengthy process of checking credit, filing applications and re-checking your income levels. As long as you can make the monthly payment, you can get the home. This means that you don’t have to check your credit and can easily move into the rent to purchase if you have had difficulty in the past with your finances.

No taxes or liability. When you are in the rental part of the agreement, you gain more flexibility. Part of the flexibility comes with the ability to not pay taxes or to have liability on your home. For those that want to settle before looking at the extra fees, are cost cutting features that are a part of a rent to own home.

Conclusion

The rent to own homes advantages include several ways that you can find flexibility and new alternatives for moving into ownership. The initial agreement and contract as well as the ability to move into a mortgage with more flexibility and payment options ensures that you are able to get the right types of advantages for your home.

Rent To Own Homes Buying Process

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If you are looking at the different options for buying a home, then you will also want to know the process that is involved with the alternatives. The rent-to-own home process is one that differs from traditional mortgages, specifically because of the requirements and contractualagreements. The following steps are the most common options to follow when you are moving into a rental agreement. 

The First Step in the Rent To Own Process

If you are under a rent to own home process, then you will begin with the phases that are designed for rental. During this phase, you will be given a contractual rent to own agreement that binds you to the home for one to three years. The agreement states that you will rent the home with an agreement to pay a monthly payment with a percentage of this going to the down payment of the home. The contractual agreement may also involve details such as maintenance solutions and alternatives when buying agreements begin. 

Rent To Own Homes

The Transition Process

The rent to own home process moves into a transition after your contractual agreement ends. If you have the option to decide whether you want to purchase the home or not, then this is the time to move out. If you want to buy the home, then you will need to go through an approval process with a mortgage company to make sure that you qualify for a loan. While this is included in the initial rental agreement, there will be considerations that allow you to change mortgage dealers and alternatives for buying. 

Purchase Your Home

The rent to own homes process ends with the ability to buy the home you are interested in. The transition point will end with a closing sale at which you will move into home ownership. The ownership agreement will be finalized into a document between a lender and your home that allows you to buy the home within a given period of time. By doing this, you will be able to move into home ownership while having the flexibility to rent first. 

With the rent to own home process, you have the ability to build your credit, stabilize your location and your finances. The concepts that are involved at each phase are able to provide you with more options for moving in or staying with the rent to own agreement for as long as needed in your home.

Definitions For Rent To Own Homes

If you are working toward selling or buying a home and want to use lease option houses, then you will want to become familiar with the terminology. This will make the transaction easier while allowing you to get into the home that you desire with the obligations that fit your personal needs. Understanding what is available can provide you with the right options to move into your home with a lease to own home obligation. 

There are some lease option houses that are obligatory to buy after the rental date. All others come with the option of buying the home after a specific timeframe. The call option is used when you want to buy the house before the rental agreement contract is through. This means that you have the right, but not the obligation, to buy the home before the lease is finished. 

Rent To Own Homes Strike Price

Strike/Exercise Price: The strike price is the overall price that you will buy a home at. The lease option homes are available with a general alternative of how much the home is worth and how much you can buy it for. The strike price, also called the exercise price, is the amount that you can buy a home for with a complete purchase. If you don’t like the exercise price, then you can negotiate or try to find a different home. 

Rent To Own Agreement Expiry Date

If you are living in a lease option house or looking at some of the options available, then you want to keep the expiry date in mind. After the expiry date, you can no longer lease or rent the property and will have to buy the home. If the expiry date is being used while the home is up for lease or purchase, then you will have the option to buy until the expiry date, at which point the home will immediately move into a lease agreement. With this option, you will want to find the home quickly and set your price before it goes into a lease-only option. 

With lease option houses, you have the ability to lease or purchase the property that you are looking at. If you want to buy the home immediately, being familiar with the terminology is essential. If you are working on a lease to purchase alternative, then you will also want to be aware of the purchase options as well as what is included in the bidding process for homes so you can find the best deal when you are moving.

Rent To Own Homes Questions and Answers

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Renting to own is quite simple. In a typical rent to own a home contract – a renter will have the option to buy the home after a pre-set period of time. The renter does not have to buy the home, it is simply an option. This works out great for many renters, because it allows them to start building equity in their purchase, should they decide to buy the home.

Rent to own will grow exponentially when mortgage rates return to normal levels. The option of renting with the option to buy and actually build equity is one that many people find appealing. Many people feel like they are literally throwing their money away on rent every month, and that is the main reason for seeking out a rent to own homes opportunities.

What Is A Lease Purchase Agreement?

A Rent to own or Lease Purchase agreement allows the seller to rent the property to the buyer until closing. A lease purchase agreement is generally used when the potential buyer is serious about purchasing the property but is not immediately ready and/or able to close.

Rent To Own Homes

How Long Does The Buyer Have To Close?

The maximum term of the agreement is negotiable (one of the fill-in-the-blanks spaces on the contract), but a common length is 12 to 24 months. The contract does allow the buyer to close sooner.

Does The Buyer Put Down a Purchase Deposit?

Yes. The Rent to own contract calls for the buyer to make a purchase deposit, which shall apply toward the buyer’s down payment, but is non-refundable in the event the buyer defaults. Three percent (3%) of the purchase price is suggested as a reasonable purchase deposit. However, the amount of the purchase deposit is negotiable. It is not uncommon for this amount to be significantly higher or lower.

Is The Purchase Price Today’s Value or The Future Value?

Most buyers and sellers prefer to set the purchase price up front. However, the seller is relying on the buyer to close with cash or a loan before the deadline they both agreed to in the contract. Therefore, if the seller agrees to extend the contract, the lease purchase agreement calls for an increase in the purchase price.

What Are The Advantages For The Buyer?

Buyers love rent to own option because it gives them time to save up for a larger down payment, clean up past credit problems or time to sell another home. Buyers can also receive a “forced savings plan”, since a portion of the monthly rental payment is usually credited toward the purchase price. The amount of the monthly rent credit is one of the negotiable terms of the agreement.

What Are The Advantages For The Seller?

Since they are allowing the buyer some flexibly on the closing date, sellers generally get today’s top market value for the property. Monthly lease payments may exceed market rents and the buyer is typically required to handle all the repairs and maintenance, since they are the future homeowner. And obviously the seller gets relief from paying the mortgage on a vacant property.

Rent To Own Homes Benefits For HomeBuyers

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You can have control of a nice home for the same amount you could rent it for. You can have the benefits of home ownership, without all the hassles and liabilities.

Very Low Down Payment

You can often secure a lease option on a house for the same amount you can rent it for. (1% to 5% of the purchase price vs. 10% to 30%)

No Loan Qualification

Most Seller/Landlords do not check credit when they lease option out a property.

Rent To Own Homes

Rent Money is Working Toward the Purchase of the Home

Each month that you pay rent, a portion of that payment will be credited towards your down payment or off of the sales price. This is called a rent credit in rent to own agreement.

Faster Equity Growth

Even a small monthly rent credit will pay down the amount owed on the house faster than if you were paying on a loan.

Option Fee Applies Towards the Purchase of the Home

The money you pay for the lease option (called option consideration) on the property applies 100% towards the purchase price of he home.

Profit From Any Appreciation

The sales price is usually locked in up-front. You will have the ability to sell or sublet the property for a profit without ever needing to get a loan.

With Rent To Own You Have Time To Check Out Things

  • Time to check out the home (leaky roof, plumbing, heating etc.)
  • Time to check out the neighborhood and neighbors (noise, schools, commute, shopping, traffic, that kennel next door)
  • Time to obtain the best financing (no pressure, no rush and no bank financing up-front).

No Taxes or Insurance To Pay While Renting To Own

The owner typically pays the property taxes and insurance. You will need a renters policy if you want your contents covered.

No Major Repairs To Make

While you may need to take care of minor maintenance, the Owner is responsible for any major repairs during the lease.

Quick Move In Time

No lengthy escrows or loan approvals. Get in the home of your dreams today, which you can buy or resell tomorrow.

Possible Assignment (Sale) of the Lease Option Agreement for a Profit

If you structure your lease option right you are allowed to assign (sell) your interest in the home for a profit.

Buy Time

Time to repair credit, accumulate a down payment, find the best loan and check out the home and area.

Little or No Down Payment in Rent To Own

Any option consideration/fee (cash up front to move in) and monthly rent credit is credited 100% towards the purchase price and possibly towards the down payment. Some lenders will treat getting a loan on a lease option as a refinance. They look for a 12-month payment record and at least a 5% down payment of the purchase price, which can be in the form of option consideration and accumulated rent credit.

Conclusion

As you can see, the list of benefits for Homebuyers is a long one. That is the reason there is always a demand for rent to own homes.

Calculating The Cost Of Rent To Own Home

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Asking what a rent to own home costs is akin to asking what a home or rental itself costs: As one can imagine the pricing is bound to vary substantially. But how about details that are unique to lease to purchase agreements? How do these come into play? What should one expect as far as how a Rent to own homes agreement should price out.

Understanding the Debt-to-Income Ratio

This is perhaps the most essential metric in calculating the cost of a rent to own homes ownership program. The DTI formula is both simple and critical in understanding exactly how a lease purchase option work.

Rent To Own Homes

Two Parts to Calculating a DTI

This is the formula mortgage lenders utilize to determine how much debt an applicant can reasonably manage. In order to accomplish this, two components are utilized in calculating a DTI; Front End and Back End. Let’s take a few moments to understand exactly what they mean.

The Front End

This is the monthly amount of debt lenders determine that a borrower can sustain in a regular payment. Lenders will take into account all housing costs: not just the mortgage payment. Among these elements they include are principle, interest, taxes and insurance (this is regularly referenced as PITI). Lenders calculate that a maximum percentage of a borrower’s gross income should equal this amount. The front end is essential in determining what budget a home owner can afford to allocate to their housing costs.

The Back End

This takes into account all debts that the borrower will incur in comparison to his/her gross income. Credit card, tax and auto debt are among the calculations. Where as the Front End of the equation takes into account the PITI factors, the back end lends a more complete perspective. Lenders will pay close attention to this when determining a suitable loan amount.

What Does This Mean in Terms of Purchase Price?

Rent to own home ownership agreements allow buyers to allocate portions of their rent payments towards Option Credits. This is essentially the equity that will be placed into the home during the rental period. The mechanism for calculating the cost of a lease to own home program will take into account the DTI, down payment and PITI factors among others. It’s essential to research tax and insurance rates in the jurisdiction in which you plan to rent to own.

Is Lease Purchase the Same As Rent To Own

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Yes, lease purchase is simply a different name (among many) used to describe the same scenario in which a renter (or lessee) has an existing agreement in place where at the end of the lease period (or rental term) there is a set price option at which the lessee or renter has the right of first refusal to purchase the property. Namely – Rent To Own. In many situations (although not in all, and not necessarily) part of each month’s rent or lease payment also goes towards the purchase price of the house, while the majority goes to cover the mortgage costs of the owner/investor who is leasing or renting the house out to the lessee/renter.

This type of arrangement is often beneficial to both parties in that the investor stands to profit from the arrangement whether the renter buys the property at the end or not, and the renter or lessee gets to live in the house of their choice with the locked in option to buy it at a predetermined price, meaning that they can live in and potentially own the house of their choice even though at the current time they are not able to afford the purchase. This kind of arrangement is especially beneficial for “permanent renters” or people who were planning to rent anyways, but only because they cannot afford to buy and are planning on staying in the area in the long-term anyway.

Rent To Own Homes

What Is A Lease Purchase or Rent To Own?

A lease purchase is an arrangement in which someone looking to purchase (or rent) a house, and instead decides to enter into a lease agreement with another investor. Basically the way it works is that person A wishes to own a home, but for one reason or another (possibly due to bad or non-existent credit among other reasons) cannot get a traditional mortgage. Person A then finds an investor, Person B, and they enter into an agreement whereby Person B will purchase the house and lease it to Person A, who will then have a right to purchase the house at a predetermined price at the end of the lease period. This gives person A the right of first refusal on buying the home of their choice at a later date, while allowing them to live in presently, in a situation much like a traditional rental.

There are many benefits to a lease purchase or rent to own agreement. For the hopeful home owner, it gives them a chance to build towards (and lock up the option on) a future home even though at present they may not be able to afford one. For a renter, it adds to the equation the possibility of staying on permanently and buying at the end of the rental period (or in this case, the lease period). If at the end of this period the lessee is unable to purchase the house, then the lessor has the option to extend the lease period, convert to a traditional rental agreement, or find a new tenant or buyer. The agreement therefore benefits everyone involved.

Lease Purchase – A Quicker Alternative to Selling Your Property Traditionally

In the current economy, selling a home can be tough (let alone selling it for the full asking price) and many home owners would like to sell their properties, but simply can’t. Many never even consider a lease purchase instead, although they probably should. There are very serious advantages to lease purchase arrangements for those looking to sell their homes, and for many potential sellers, a lease purchase might be the best option for both them and their potential buyers.

The main advantage to a lease purchase agreement is that it can help you get your full asking price for the home (although a bit in the future) and in the meantime, you can often collect a higher than average rent than you would by simply renting your property through a traditional rental agreement. Basically, when you offer a lease purchase, you’re offering the lessee (and future buyer) a very attractive financing option, and that in turn benefits you through the amount of rent you collect as lease payments and the final price you collect upon purchase at the end of the lease term.

You also collect a deposit from the renter/lessee which is non-refundable. This means that at the end of the lease term, if the lessee is unable to or opts not to purchase the property for the pre-arranged purchase price, you continue to own the property and can then begin the process all over again, rent traditionally or sell to another buyer. This means the risk to the lessor/renter is very low, since just about any way you slice it, there is a profit made.

Rent to Own Homes: When Does it Make Sense?

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Home ownership is a principal ambition for nearly all people. It can be said that a sizable portion of our population is comprised of homeowners. Think about it: Owning a home creates a multitude of advantages. How about living quality or not having to deal with neighbors in extremely close quarters? What about the prospect of not squandering money to rent payments? However, it can be said that owning a home is quite an expensive initiative: Almost always, a great deal of financing is required to make home ownership a realized ambition.

It can be said that one of the primary barriers to owning a home are both the financing it requires as well as ever-stringent lending guidelines. That’s why locating a home for lease with a purchase option is such an attractive option for so many individuals and families.

Let’s take a quick overview on what a rent to own home ownership arrangement is as well as manners in which it may aid your aspirations of owning a home yourself:

What Does Rent to Own Mean?

First of all, it’s essential to understand whether rent to own is for you. Before pursing any further information, it is essential to make that determination. As great as renting to own is for some, it’s not a one-size-fits-all option.

Rent To Own Homes

How To Find Rent To Own Homes?

Rent to own sits in between the primary mainstays of the real estate market; renting and buying. It’s essential to understand characteristics of what type of sellers are most likely to offer this type of lease purchase agreement. It may be sensible to educate yourself as to how to locate a rent to own seller. There are tell-tale characteristics that are involved in making this determination.

What Do Rent to Own Homes Cost?

That’s akin to asking what a home costs itself. The prices, as you may be able to imagine, range considerably. Understanding how to budget an RTO home will prove essential in this. Although prices may range considerably, it pays to familiarize yourself with the inner-workings of what you may need to budget for a rent to own homes ownership program.

Consider Before Renting to Own

It can be said that a rent to own home ownership arrangement is not the most suitable option for all homeowners. When favorable lending terms are available, it’s most sensible to bypass the rent to own option.

Scenarios When Renting to Own is Most Appropriate

But how about those not able to obtain favorable financing terms? Lease to own home programs are exceptional in their ability to provide a buffer period for prospective home owners to build a buffer period in order to build up their credit and/or finances. Furthermore, rent to own programs allow a home leaser to place equity into their homes while renting.

Who else may benefit from an RTO home arrangement? How about those who may need a flexible living arrangement? There are circumstances where one may take up work in a new city, yet not be entirely sure whether the move is permanent. A lease to own arrangement can be optimal for those wishing to wait out such a decision.

In Conclusion

Rent to own homes most certainly holds benefits for countless individuals. However, it’s important to evaluate your personal situation before entering any such agreement. Just as in any purchasing decision (and most certainly the case with real estate) due diligence and analysis of your personal situation goes an incredibly far way.

How Does A Rent To Own Home Transaction Work?

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Renting to own a home is actually a misnomer. It implies that you rent for a period of time and then you own the home. This is not the case. Rent to own a home is a lease with a difference – you have the option to buy the home at any time during your lease period.

Rent To Own Homes

The Difference Between Renting And Renting To Own

Renting:

  • Rent money is lost forever.
  • Your landlord does not want to sell the home
  • Purchase price is never discussed, since the home is not for sale.
  • Landlord is responsible for all repairs
  • Rent is set at market rates
  • A security deposit, first month’s rent and sometimes the last month’s rent will be required to move in. The security deposit is refundable in case of no damage to the home.

Rent To Own

  • A portion of your rent goes towards your down payment or the price – kind of like a savings account. This is called a rent credit.
  • You don’t so much have a landlord as you have a seller whose intent is to sell the home to you.
  • The price you will be buying the home for is set at the beginning of the lease in the form of an option to purchase.
  • You are responsible for the repairs since you are a home owner to be. This is the house you want to buy and therefore you are treated like a home owner.
  • Rent may be slightly higher than market rates since a portion of it is going toward the down payment or reducing the sales price. This allows you to build equity while you are getting ready to buy.
  • A down payment, called “option consideration”, will be required. This will lock your option to purchase on the property, and will go toward the purchase price as a down payment. This is not refundable if you choose not to buy by the end of your lease. First month’s rent, and sometimes a security deposit will also be required.

When Does Rent To Own Make Sense

If you are tired of renting and want to purchase a home, but your credit, income situation or other factors will not allow you to qualify for a home mortgage right now, then renting to own is for you. If insufficient credit is holding you back, then you need some time to fix it. By doing a rent to own home transaction, also known as a lease option or lease purchase transaction, you get to live in the home you want to buy right now while you work on getting your credit fixed.

When You Should Not Do A Rent To Own Home Transaction

There are times when entering into a rent to own home transaction is a bad idea. You don’t want to lose your option down payment because you were not prepared to purchase the home. Here are the top five situations when you should not be doing a rent to own home transaction:

  • If you don’t have the discipline to change your financial habits if bad credit is the problem
  • If you are not prepared to do what it takes to get ready for a mortgage eg. credit repair, setting up trade lines, paying rent on time
  • If you are not sure that this is the right home for you
  • If you don’t know how long you will stay in this town because of job or family reasons
  • If you don’t have a steady income. Your mortgage will not be approved without a stable income source

Are You the Right Candidate for Rent to Own Homes?

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You’re tired of renting. You’ve long wanted to buy your own home but your credit scores simply aren’t high enough. Don’t despair, though, you have one other option: You can rent to own.

As the housing market has slumped and sellers struggle to move their residences, you might be seeing a growing number of “For Rent” signs replacing “For Sale” versions in your neighborhood. That’s because housing prices have fallen so steeply. Many owners know that they won’t get the price they want for their homes in today’s real estate market. So a growing number of them are offering to rent out their homes as they wait out the bad real estate market.

Rent To Own Homes

This provides sellers with at least some income while they wait for housing values to start rising again.

The Rent To Own Solution

Many of these rental houses may actually be rent to own properties. Renting to own is similar to renting an apartment or taking on a car lease. You move into the property and pay your monthly rent. But after a certain period of time, which can often reach the three year mark, you have the chance to outright purchase the home.

And here’s the biggest benefit: Your landlord will withhold a certain portion of your monthly rent that will be used as part of a down payment should you decide to purchase the house.

Rent To Own Homes – Benefits

The benefits of participating in a rent to own arrangement are many. First, by living in an actual house instead of in an apartment, you’ll get a taste of what homeownership is all about. You might discover that you don’t enjoy mowing the lawn or cleaning the gutters. You might find that a home is simply too large and time-consuming for you to handle. That’s fine; at least you discovered this fact while renting, not after you took out a mortgage loan.

Rent to own homes also provide flexibility. You can choose to simply renew your lease instead of making an offer to buy. Or, you can also decide to move on when your lease expires, perhaps back to the smaller, but easier to maintain, comforts of an apartment unit.

Overcoming Low Credit Scores

Best of all, though, a rent to own arrangement can get you into a house even if your credit scores leave something to be desired.

Mortgage lenders today have tightened their lending standards. The reason for this is obvious: During the housing boom, mortgage lenders passed out home loans to borrowers with weak credit scores and mountains of debt. Not surprisingly, many of these bad loans fell into default and foreclosures soared.

Mortgage lenders have since learned the wisdom of passing out home loans only to borrowers with strong credit scores and reasonable monthly debts. This means that if your credit score isn’t high, you might not be able to obtain a mortgage loan from most conventional lenders.

Today, conventional lenders will require you to have a credit score of at least 620. And if your score is under the 750 mark, you can expect to pay higher interest rates. Borrowers can still apply for a loan insured by the Federal Housing Administration. Borrowers who have a credit score of at least 580 can qualify for an FHA loan that requires a down payment of just three-and-a-half percent of the home’s final purchase price.

Is Rent To Own The Best Option?

But if your score is lower even than that, your best bet might be to enter into a rent to own agreement. By doing this, you can take the steps necessary to boost your credit score while still learning what it takes to become a successful homeowner. And if you find that renting really is the best choice for you? Then you’re fortunate that you’ve discovered this fact before taking on the burden of a monthly mortgage payment.

Lease Purchase – Rent To Own Homes

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Doing a lease purchase/rent to own transaction means that you are ready to take the first step to home ownership. You are tired of renting and want to stop throwing money away every month, but your current credit or job situation will not allow you to get a mortgage.

You heard of rent to own homes, also known as lease to buy, and you wonder if it is the right decision for you. There are certain things you need to consider before making a lease purchase decision. The most important being what your credit score is right now.

Option Down Payment

In a lease purchase transaction you will be required to do an option down payment. This down payment is known as option consideration and will be applied to your eventual purchase price, or closing costs on the mortgage. Your lease purchase contracts will have two parts to it: a lease contract, and an option to purchase contract.

Rent To Own Homes

The option down payment is to secure the option to purchase. You are essentially tying the property up so that the owner can sell to no one else but you at any time during the lease period. In return for the owner taking the property off the market and letting you tie it up, you are paying the option down payment, which is why it is non-refundable.

Why Your Credit Is Important

Good credit is not necessary to enter into a lease purchase/rent to own transaction. It is expected that you have bad credit. If you had good credit you would simply go buy a home! The reason why it is important to you, is that your credit need to be good enough at the end of your lease period to qualify for a mortgage. You made a non-refundable down payment, and in order to get credit for it, you need to buy the property.

You need to know if one year is enough time for you to fix your credit. Because if it is not, then you want to negotiate a two year lease with the option to buy. Here is a simple rule of thumb: if your credit score is in the 400’s, you need two years. If your score is in the 500’s, you will probably be okay with a one year lease term.

Be Honest With Yourself

Now that you have seen your credit report, you need to be honest with yourself. Is your credit bad because you always had good credit and just went through a temporary situation (divorce, job lay off etc..)? Or is your credit bad because you do not have good financial habits and you never had good credit? If it is the latter, you are now betting on yourself that you will be better in the next year or two about paying bills on time.

Since you are putting down a non refundable down payment, you are betting that your score will be good enough in one or two years. If you don’t change your old habits, you will lose that down payment when you can’t buy the house because of bad credit.

Get The Odds On Your Side

You need to establish good credit by paying bills on time. But that is not enough. You need to also have the bad items removed from your credit. This does not necessarily mean that you must pay old collections. If it is more than two years old it does not affect your credit score much, if you now start paying on it you will make it current and it can make your score go down!

I recommend using a reputable credit repair company to assist you in removing the bad credit items. They assist you to have bad credit items removed from your credit report like it was never there, without having to pay the outstanding debt. The way they do it is to use their knowledge of the Fair Credit Reporting Act to ensure that the bad credit item is valid, and also to ensure that the creditor that put the item on your report had the right to do so.

Did you know for example that many collection companies can not put the collection on your credit report (but they do). You never signed an agreement with the collection company, you signed an agreement with the creditor. Only the creditor can file a derogatory item on your credit report, unless their contract states that a third party can file it on your credit report against you on their behalf. Therefore many collections on your credit is not allowed to be there.

Build Good Credit

Having bad items removed is neccesary, but it is not enough. You also need to build good credit. Additionally, you need three tradelines (loans, credit cards, car loans etc.) in order to qualify for a mortgage. 24 months history on those tradelines are preferred, but 12 months will do. Alternative trade lines in the form of utility bills or cellphone bills can used as well.

But you may have a problem getting a credit card or a loan because of your bad credit. Don’t give up, there is a way. There are credit card companies out there that will give you a credit card no matter how bad your credit is, because it is a secured card. You give them a deposit, and they give you a card with a limit equal to your deposit. Getting this card is very important to you, because they will report your on time payments to the credit bureaus and this will really help boost your score.

Now, Make The Decision

You now have a lot of information. If you are willing to do ALL the above and do your homework on your credit, then doing a lease purchase/rent to own transaction is right for you.

Finding Rent To Own Homes

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Rent to own homes can be a good option if you cannot afford to take out a loan for the purchase price of a home. The rent you pay to your landlord goes toward the purchase price and once you have fulfilled terms of the contract you have entered into, the house is yours. Some landlords will even give you a break on the purchase price if you make your payments on time. Depending on your financial situation, rent to own can enable you to become a home owner without the hassle of dealing with a mortgage.

Searching For Rent To Own Homes

Finding homes to rent to own is not a hard prospect. You can start your search right here, just click the button “Browse Rent To Own Homes“. Depending on the area you live in there could be several properties that offer this option or just a few. Besides the obvious choice of consulting a real estate agent, the internet can be a goldmine of information. Spending some time researching the resources available can mean the difference between finding your dream home and having to settle for a home that is below your expectations.

Rent To Own Homes

Using a Real Estate Agent

If you are interested in entering into a rent to own contract, your first choice may be a local real estate agent. A real estate agent can help you to sift through the many choices available and help you to decide which features of a house are important to you. Do you need more than one bathroom, is a yard a necessity for your family, are you looking for a home that has several bedrooms or do you need a home with a garage? Another consideration may be the choice between a townhouse, attached or semi-attached property or a single family home. If you are new to an area your real estate agent can apprise you of the safety and accessibility the location and neighborhood. An agent can look through his listings and find a home that you can afford and one that meets your wish list.

Real Estate Agent Commission

Of course using a real estate agent means you will pay a commission for their services. This commission may vary from state to state, so be sure you know up front what they charge. One of the services that is included in an agent’s commission is help with the closing procedures and rent to own contract. Since it is your agent’s best interest to be sure that you are treated fairly, he can be an asset to you when it comes time to put your name on the dotted line at purchase time.

Going It On Your Own

While using a real estate agent is a good option, you can opt to find a rent to own property on your own. Classified ads are a good start to get a feel for what is available in your area, but many times they are limited to a specific geographic location. The internet has several sites that you can use to search for properties. You can even post a listing of the type of property you are looking for on some sites so that when landlords list their properties they can pull up a list of people who meet their property’s descriptions.

A simple Google search will pull up sites that list rent to own homes such as this one. Compare the features of each and find the site that you are most comfortable with. Most sites require that you register and some charge a monthly fee. After you register you are able to tailor your search to the area you want, the type of home you desire and the monthly rental you can afford. Once you find properties that you want to look at you can contact the landlord and start the process of setting up a contract.

When you decide that a property is the one you want it is advisable to have a home inspection just as if you were buying the home outright. This will call attention to any defects or expensive repairs the home may need. These can be either fixed by the landlord or you can negotiate for a lower price if you do the repairs yourself. Another important person to include in the rent to own process is a lawyer. You need someone to represent you and make sure that you are protected. A lawyer can save you money and heartache down the road by examining the contract and making sure it is legal and binding.

Conclusion

Finding a rent to own property can be a rewarding and exciting experience. There are a few points to be aware of to make sure that you find the right home and a contract that you can afford. With some research and knowledge, you can find the home of your dreams.

Advantages of Rent To Own Homes

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There were a great many loans being approved that should never have qualified in the first place and when the majority of these end up in default it drives the economy into a downward turn, causing even more problems for the housing market. As a consequence the mortgage guidelines have been tightened to the point that many potential homeowners no longer qualify. In most cases it only requires a few items, or corrections, for them to get a loan. The problem is that if a family chooses to buy home when prices and interests are low but has to wait a couple of years to meet the qualifications, before the conditions can be met, the real estate market climbs and these families are saddled with a much larger mortgage payment and total cost of the home.

Rent To Own Homes

Why Consider Rent To Own?

Let´s say that, for whatever reason, your credit score is too low to get you approved for a home loan but you have a stable income. Are there any options for families in this situation that would allow them to get the process of buying a home started while they are trying to improve their credit rating and qualify for a home loan? Actually there are. Many potential homeowners have decided to get involved in a rent to own home program. These programs are an excellent choice for families in this situation and have many benefits for both the tenant buyer and the property owner.

Sagging property values have caused many homeowners a great deal of difficulty selling their homes, especially if they plan to get anywhere close to what they paid for their home in the first place. Homeowners across the country are losing as much as 50% of the original value of their homes and many are desperate for solutions to this problem. Many homeowners are using a rent to own option to try to get the original value of their home or as close to it as possible. A rent to own option is fairly simple. The renter agrees to pay a set amount each month that is above the rent total. This extra money is applied to the price of the home and the renter agrees to pay the balance off within a specified period of time. The owner usually sets the final price higher than the current market value of the home as a way to regain some of their original investment and the renter has an opportunity to make payments on a home while at the same time improve their credit ratings enough to make final purchase within the time period specified.

Seller VS Renter Benefits

We can easily see the benefits for the seller. Besides the chance to start paying on a home however what are the benefits for the renter? Rent to own situations are usually based on the renter’s ability to pay. In other words if your income reflects that you can meet the rent, and the house payment with it, you will usually qualify. Sellers will also want to see a target date for the renter to be able to get a loan to pay off the balance. It is rare for a seller to want to carry the payments all the way to the total. This does mean that the renter will not usually have to pass a credit check. In these days of credit checks for everything from apartment rentals to jobs, this is a huge bonus.

Finally for the duration of the contract the renter is responsible, in some case, for paying the HOA. The taxes and insurance on the home are the home owner’s responsibility. They can be released from this responsibility through the terms of the contract but you do not have to agree to this as it can amount to a great deal more cash out of your pocket.

Conclusion

The economy is improving and housing prices have begun to climb slowly. With a rent to own contract the price you agree on in the contract is the final price. If the home appreciates in value the only price the renter will have to pay is the original agreed on price. Once the contract is locked in the appreciation value of the home will go directly to you and your family, not the person who owns the home. Keep in mind that this only applies if both you and the owner abide by the terms of the contract. In some contracts even a single late payment can void the terms and you can lose your investment.

Rent To Own Homes Financing Options

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If you are trying to purchase a home you may find that it is not possible to obtain a mortgage from a bank for various reasons including your credit history, credit score or employment history. Banks have very strict criteria that you must meet before they will approve a home loan. You may not qualify for a loan from a bank or the interest they want to charge you may be more than you are willing to pay then the option to rent to own may be a good choice for you. Normally you enter into a contract with the landlord and after a set amount of rent is paid the home is yours. While these contracts are pretty basic there are some options for you to consider before putting your name on the dotted line.

Rent to own or mortgage?

There is an advantage to taking out a mortgage for your home. You will usually end up paying less for your home by taking out a mortgage from a bank depending on the interest rate that is set. For example, if you purchase a $300,000 home by financing it through a bank your may pay approximately $145,000 less than if you rent the same home for 30 years. This is because rent normally increases as time goes by and your loan payment stays the same.

Bank or private Loan?

You may have the option to rent the property for a specified time and then make a balloon payment for the rest of the purchase price. If this is the contract you choose you will need to find financing for the balloon payment. You may be able to rectify the circumstances that prevented you from getting approval from a bank by the time the balloon payment is due. If this is the case then a bank loan for a mortgage will have the best interest rate available at the time.

Rent To Own Homes

Your landlord may enter into an agreement with you to finance the remainder of the purchase price for your home. He would become the lending institution and it would be wise to hire a lawyer to set up this agreement for your protection. You would make your payments to him and after the allotted time you would own the home and hold the title. These types of agreements are normally for much shorter times than a traditional mortgage.

Remember that while you have a loan outstanding for your home you do not hold the title. The lending institution or landlord will hold the title until the home is completely paid for. This means that if you decide to move before you are through paying for the property you may forfeit all of the money you have paid up to that point if you are renting to own. You must be sure that your budget is adequate to enter into such a loan or contract so that you do not lose your investment.

The most common way to finance a rent to own home is for your rent payments to go toward the purchase price of the home. Generally these agreements are for as short as 3 years or longer depending on your situation. A rent to own contract is still required for this type of agreement stating exactly how much the house costs, what amount of your rent will go toward the purchase and the duration of the terms.

Down payments

Any money that you can put down toward the purchase price of your home will decrease the length of the contract that is required before you can take possession of the property. Even a small deposit payment is better than nothing. Your contract should state clearly whether your down payment is refundable or forfeited should you choose to terminate your agreement for purchase.

Interest

This is a fixed rate that is added onto your loan every month for the duration of your loan. Some landlords may give you a break if you can pay off your loan before the last payment is due. Depending on the contract you enter with your landlord and if it is considered a loan you may or may not accrue interest. Normally you can expect a 1% to 5% interest rate on a loan held by your landlord.

Buyer protection

If you choose to have your landlord carry the financing you should hire a real estate lawyer to draw up the contract. This will protect your interests and make sure that you are protected. If you enter into a rent to own contract without a lawyer’s advice you are putting yourself at risk of not having any legal recourse should the deal sour.

Conclusion

Examine your budget and credit. If you find it is in your best interest to rent to own a home then know your options and your legal rights.

Rent To Own Contract Is Actually Two Contracts

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These days getting approved for a home loan of any type is very difficult. The banks, reacting to the economic crisis are heavily regulated. The required credit score, to qualify for a home loan and higher than ever down payments are keeping many potential homeowners literally out in the cold. The problem is a serious one for many families. In addition to not being able to get a loan now, with the economy improving, housing values will rise, adding many thousands to the final price of the house and depriving them of collecting the appreciation.

Rental Contract

Instead of buying outright many people are choosing to enter into rent to own homes agreements with home sellers. These agreements are generally outlined in rent to own contracts. A rent to own contract is actually two contracts. The first contract is the rental agreement between the landlord and tenant. This contract includes the monthly rent amount and the day it is due along with any information about late charges or maintenance required. It also includes the life span of the lease and this is usually the time needed for the buyer to obtain a loan or otherwise come up with the purchase price. These agreements last for usually three years maximum but the date is as flexible as the two parties agree on. While it is rare some owners will even agree to rent to own for the entire amount.

Rent To Own Homes

Rent To Own Contract

The second contract is the lease purchase agreement. This document is much more important than the first document. While much of the same information is included, such as the monthly payment amount, end of the lease period, and late payment agreements it also contains much more. This is a situation in which both the buyer and seller need protection. The lease purchase agreement should have all of each party’s rights outlined clearly. The following is a short list of issues that should be addressed in a lease purchase agreement.

  • Total purchase prices of the house
  • Amount of money due each month that is applied to the above price
  • Due dates of all payments, including the final due date of the total
  • Maintenance and remodeling issues
  • Default/breach consequences for both the buyer and seller

If you have a lease rental period that is three years or longer you should understand that there are a great many things that can happen in that time. The values of homes could increase substantially and the home owner may decide that they do not want to wait. In a situation like this, if not protected by the lease purchase agreement, the buyer could lose all of their investment. The same applies to the buyer who finds a home that they like better, for a better price, and elects to opt out. The entire period that the seller has held the home off the market in expectation of this purchase is lost.

Provisions Of A Rent To Own Contract

Another potential problem area is remodeling and maintenance. The lease purchase agreement should describe who is responsible for maintenance. This is sometimes a large problem. In most tenant agreements the property owner is responsible for maintenance. Because this is a situation in which each month the renter is increasing his interest in the property it can be confusing if the details are not outlined in full. This is also the case with remodeling. While most property owners will not have a problem with this, thinking that if the work is done and the family defaults, they will benefit from the appreciation from the remodeling. Depending on the amount of work to be done remodeling can increase the value of the house tens of thousands of dollars.

Another issue that can be resolved in a lease purchase contract is the addition of equipment. Alternative energy sources all require the installation of special equipment. Solar cells, wind generators, things like this are examples. Much of this equipment is very expensive. If either the buyer or the seller chooses to opt out of the contract, or they do so by mutual agreement, who keeps this equipment? Removing it can decrease the value of the property and letting it stay will cheat the buyer out of their investment. It will not be too many years before alternative energy on homes is more common than not and this will become a major issue in most real estate transactions.

Conclusion

In rent to own homes, a contract can be nearly anything that the parties want it to be. It can include any type of conditions that are not forbidden by law and should be designed to protect the buyer and seller equally. The best way to assure that it is done with all parties in mind is to either have a licensed real estate attorney prepare it for you or have one review it completely before you sign it.