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 would suggest that you look on Craigslist for such a property and there are various rent to own sites. I have one to offer for sale and we actually own the property outright so you do not have to worry about foreclosure. We understand that good people make credit mistakes and that it is harder to get a loan from the bank these days. We consider the income and the credit and offer up to two years for the purchaser to obtain other financing. Depending on the situation, we can offer property so that the purchaser actually has the ability to deduct the interest and taxes, plus there is no PMI, the closing costs are lower and you can save more for a down payment if you can deduct the payments. You should check out any such situation to make sure that you are not being ripped off or there is no chance of foreclosure. Realtors don't really like seller financing because they do not always get their commissions up front. As with any real estate transaction, you should consult an attorney. The other thing to consider is that home prices could go up and that interest rates could go up. Not every seller who is selling rent to own is a crook. You just have to do your homework. You might find a good deal!
Here's a link to a blog I wrote on how to find rent-to-own listings: http://bit.ly/findaleaseoption
There are also plenty of investors who put together such deals, including some I know (and many I don't know) in Richmond.
By the way, there are plenty of legitimate reasons why sellers would put a property up as a rent-to-own.
However, I'd suggest you get a competent real estate lawyer to help you. One who knows, understands, and is comfortable with lease-options. You need to protect yourself, and there are ways to do it. And while you don't need a lawyer, most folks really don't have a clue on the types of protections they need.
Hope that helps.
Can I ask you why would you want to do a rent to own? I assume it is because of credit and/or qualifying for a loan. I am asked almost weekly about these types of scenarios and I will advise you as I do them: stay away from these types of situations, and here's why: Why would a seller want to do this type of arrangement? Typically because one or more of the following reasons: they owe too much on the house to sell, want too much for the home, are having financial issues. Otherwise they would either sell or rent the home. I have witnessed and spoke to droves of people that have given a large deposit, paid rent with the overage to be applied towards down payment, to receiving foreclosure paperwork from the Sheriff because the owner had stopped making payments. I recommend you rent unless the seller can provide you with a real good reason why they are doing this type of arrangement; e.g. to avoid paying capital gains, Estate Planning reasons, etc..
Ryan C. Sanford
REALTORÂ®, Associate Broker, CDPE
Top 1% of Agents in Central Virginia!
9401 Courthouse Road, Suite 200
Chesterfield, VA 23832
804-423-2392 e fax
Licensed in the Commonwealth of Virginia