Best of luck to you.
If any of this sounds like it might not be a good idea, then you are starting to catch on.
In a Seller's market it doesn't make financial sense to hold their property off the market in hopes of a Buyer purchasing later. Below is an example.
The Buyer and Seller agree that the Buyer will purchase the house for a specific amount, most likely based on todays market value. The Buyer has the option to exercise that purchase price at later date. If the price of the home goes up the Buyer may exercise the locked in lower rate. If the price goes down the Buyer will most likely not exercise the purchase option. An option amount is put into escrow and in the event the Buyer exercises that option that amount is applied to the purchase, or if the Buyer doesn't exercise that option they may loose that option amount. It can be sizable more than a security deposit.
The second part is the lease. How much are you going to pay for rent and what amount of that rent will be applied to the purchase. Usually the seller will ask for market rent then add an additional option amount on top of the rent. So now you are paying more for rent than you would and if you don't exercise your option you don't get that back.
I would suggest if you can afford those terms, set up a separate bank account, put in the option money and what you would pay above your rent and start planing on buying later. Meet with a lender to learn what credit scores, work history, and debt you need to correct. Home ownership can happen, it may take time and having a game plan is the best way to approach it.
Have an amazing day!
Charles B correctly wrote that these are basically ploys of the sophisticated to take advantage of the unsophisticated.
If you want to buy a home you 'll need three things,
Assets- (money to put down)
Credit (as determined by your tri-merged credit reports)
Income ( a steady two year job history)
I've attached a link below that goes into more detail and suggest you might want to take a look.
Do yourself a favor and stop dreaming about renting to own, it's just that: a dream.
You have received excellent advice from Debra rose, Christopher Pagli, Ron Thomas, Sally blaze and Bill McCord.
In my experience, most rent to own properties are sold y sophisticated sellers who are looking to take advantage of unsophisticated, unwary buyers.
I recommend that you do not enter into any rent to own deals. It is almost certain that you will lose your money and not get title to the property even after you have spent tens of thousands of dollars for the property.
I recommend that you do what ever you have to do to solve your credit problems, rather than waste your time and money on a rent to own deal where it is doubtful that you will ever get clear title to that property no matter how much money you spend.
Charles Butterfield MBA
Real Estate Broker/REALTOR
Cell Phone: (408)509-6218
Email Address: firstname.lastname@example.org
Perhaps once you learn more, you will decide its not something you care to do.
I would want to ask you why you're considering this?
Do you think all the rent you pay will be used towards the purchase?
That usually isn't the case.
If you cannot qualify now for a mortgage, then you better make sure you will qualify when the lease period is up and it's time to buy the house.. or, you will forfeit any upfront money that will be on deposit.
Usually, there is upfront "option" money that is held and credited towards the purchase.
However, it is also usually non-refundable if you don't exercise your option (don't buy, or can't buy the house).
If you don't have any money to put upfront, you may then pay an amount over and above the normal rent - that amount will be applied towards the deposit.. Again, if you don't buy the home, that overage will be forfeited.
There are many potential problems with this kind of arrangement, and it usually favors the seller.
The sale price is agreed to now, rather than at the lease end..........if the house doesn't appraise out, when the time comes, you may lose that upfront money, as you won't be able to get the loan.
There are also possible issues on the seller's side - what if the mortgage isn't paid and the house goes into foreclosure?
My advice is...rent for now and work on whatever it is you need to do first.........then buy when you're ready and able.
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!
The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.
The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?
This is the Ultimate Caveat Emptor!
In today's real estate market, anywhere in the San Francisco Bay Area, you will probably find this is a "sellers market". There are many more buyers than sellers. This would suggest that a seller would be more inclined to accept an offer to purchase with little risk. A "lease to buy" is considered a riskier option to a seller than a straight purchase.
However, if a seller has reasons to extend the selling of his home through a lease option offer, you might be a good fit! The best way to find these "listings" would be to consult with a real estate agent who is willing to help you in writing this kind of offer. If you don't ask, you will never know if the seller is willing to accept such an offer.
Do yourself a favor, though, and spend a little time researching options for first time home buyer programs and down payment assistance programs. You may find there is a program available to you, that will give you more options.
Alain Pinel Realtors
Can you please explain why you feel this is a viable option for you when there are so many great 1st time home buyer programs available for just about anyone who really wants to be a buyer.
Through mutual trust (e.g. always pays on time), the seller wants to sell as-is w/o putting it on the market.
I know one person who has been trying for 2 years asking same question almost daily and the answer yet has not changed to yes once in the South Bay.
Keller Williams Realty
You've been given a lot f great advice about rent to own homes. The important tae away from this discussion is:
1. This type of sale is more to the advantage of the seller than the buyer
2. Rent to own is offered in areas where home sales are sluggish so that buyers need the incentive to buy
3. You will NOT find any rent to own homes here in Santa Clara county...homes are selling briskly here and for multiple offers, so there is no incentive to any seller to sell a home in this complicated manner.
4. This is NOT the same as rent to own furniture and failure to strictly adhere to the terms of the contract can result in loss of some or all of your investment in the home
5. Always work with both a Realtor and an attorney when attempting to negotiate a rent to own contract.
"Rent to own" is an often misunderstood concept that buyers arrive at without knowing all of the details. Rent to own purchases offer a wide variety of terms and conditions that are arrived at between the buyer and seller and/or their representatives.
One of the biggest common misunderstandings is that buyers can purchase a home with less cash on hand. The reality is that any savvy home owner will require a sizable deposit to insure their investment is protected in the event the seller has a change of heart and wishes to "walk."
Another reality of these transactions is that sellers often view these buyers as weak and without real powers of negotiations. This can result in buyers paying more for the property than it is actually worth.
We would recommend that anyone considering this as a viable consideration make certain they understand the terms of their agreement and have proper representation.