Rent To Own is a better deal for the Seller than it would ever be for a potential Buyer.
The basic concept is finding a way to "force" savings towards a down payment by including a portion of the monthly rental that goes towards that savings. You pay your rent every month and your Landlord deducts a pre-determined amount to hold in a special bank account, called an "escrow" account. Your Landlord holds that money until you have saved up enough---through this "forced-savings" method---to meet a down payment to purchase the home.
The terms of the purchase price, including the down payment amount, and the amount to be set aside from the rental for down payment, are all set down at the time of lease signing.
It's all about helping the renter/tenant save up enough money for a down payment to buy a home (in this case, the one you're renting). But this is a better deal for the Seller because he gets to lock in a purchase price and a buyer today for a future sale.
Saving money for a down payment? Well, heck, you can do that on your own.
If you are dedicated to the idea of buying your own home, you can create your own savings plan to save up enough money for a down payment. And when you have saved up enough for a down payment, if that takes a year or two or more, YOU get to decide on the price you're willing to pay for the house at that time based on current market conditions. You won't be locked in to a price that may be a lot higher than what the house is worth in the future.
With Rent To Own you'll be locked in both to the house and to the price, even if it takes you 3 years to save enough through the forced savings of the rent payments. What happens if three years from now your life situation has changed? Maybe you need a bigger/smaller home. Maybe your employment has relocated. Maybe your credit or income is insufficient to qualify for a mortgage loan.
Find a way to save up on your own; not with Rent To Own.
Sit down with a local Mortgage Banker and get yourself prequalified, too. You may find you're better qualified than you think you are, and, if you're not, at least you'll know how much loan your income and credit qualify you for, and how much you have to save towards down payment and closing costs.
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I'm back again and just wanted to clarify that there used to be a distinction between a rent to own lease-option arrangement and a lease-purchase deal. Lease-option means that at the end of the lease term, renters do NOT have to buy the house.
Under the rent to own lease purchase deal renters are obligated to BUY it. Many people, including agents, now use the terms interchangeably, which is why I mentioned both in my first answer, so be clear on what lease and/or contract you sign and exactly what it is you are looking to do.
Gina Chirico, Sales Associate
973-575-6353 ext 17
When you "rent to own," you pretty much are just paying for an option to buy.
If you've got credit problems, the best thing you can do is rehab your credit. One way to do this is to rent something more modest than you can afford, not paying a premium for an option you may not be able to take advantage of.
So. Rehab credit, save a few dollars, then buy. OK?
All the best,
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Hope this helps..
With a poor credit score, options may be limited due to the fact that most landlords, if not all landlords, require a credit report. With that being said, I have seen quite a few landlords rent to someone with a lower credit score. Unlike lenders when buying a home, its solely up to the landlords discretion to rent the property to you without worrying about underwriters, approvals, etc.
With that being said, there's two ways rent to buy options can be proposed. One, where you rent for a certain amount of time and then have the "first option" to buy it at the end -- No harm, no foul. Unless typically spelled out, no amount of the rent is going towards a down payment. If there is a certain amount going towards the down payment, I would have a lawyer write up the contract to protect both sides of the deal, like if buyers opt to not buy - do you get your money back that went towards the deposit??
In another scenario, you and the seller can agree on the price of sale now. You would rent with monies going towards the downpayment and next year you would buy it at the price agreed upon. With that scenario, you are buying the property at today's value. Is that good for the buyer? Not always -- what if the market declines? You've overpaid for the property. If the property value rises, you made out however the seller isn't getting the current market value of what the home is worth on the day you buy it. Its a gamble on both sides and should be seriously thought through and both parties should have attorney representation.
Depending on how long you want to live in the property, the terms of lease are extremely important as are the terms of the "rent to own".
If I can be of further assistance, please do not hesitate to reach out for me directly.
Gina Chirico, Sales Associate
973-575-6353 ext 17
Hope that helps.