Home Buying in Littlestown>Question Details

Ladybug, Home Buyer in Littlestown, PA

I have been offered a rent to own home that needs repair. I don't mind doing the work because it requires very low downpayment and rent. any?

Asked by Ladybug, Littlestown, PA Thu Aug 11, 2011


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Ladybug, There are lots and lots of pitfalls on rent to own arrangements. Please, please do yourself a huge favor and be sure to have an attorney draw up the contract if you decide to go forward. I would venture that well over 75% of the rent to own transactions end up with the property reverting back to the owner. In your case, you are running the risk of putting your labor and money into someone else's home. Be sure to cover all of your bases up front.

Some of the obstacles to the rent to own options are:

Rent/downpayment are not sufficient to cover the necessary loan qualifications for you ever to refinance into traditional financing. This is no problem if you are entering into a infinite contract with the seller; however, becomes the deal breaker if you have a "due and payable" clause that requires you to refinance out of the contract in one, two or five years. Traditional financing will require you to evidence down payment funds into the home and will only allow any funds over and above "fair market rent" as credit for any down payment.

You run the risk that the owner is not timely paying the taxes and insurance, despite you providing the funds. Of course, he/she runs the same risk if you are required to make the payments and don't. More than one seller or buyer has lost their home to the tax collector for non-payment of taxes. If you go forward with any rent to own option, pay the few dollars for a third party contract collection company to handle all funds and payments.

Keep extremely detailed records and make all payments in check or money order and keep the canceled checks and all bank statements showing the funds coming out of your account. If you cannot document it and prove it on paper...it did not happen (from a lenders perspective).

Remember, your name is not on the title so essentially you will be remodeling someone else's home. Think very carefully...and consult legal counsel.
1 vote Thank Flag Link Thu Aug 11, 2011
My husband and I bought a lease option property in Waynesboro some years back and it worked out well for us. We did have a lawyer draw up the contract though, and in our situation the landlord essentially acted as the bank. He held the mortgage for 15 years. During this time, we paid all bills and completed any repairs needed. At the end of it we paid it off and recieved title. I have a friend who had concerns about repairing a property that someone else owns during the contract, and they inserted a stipulation that any repairs over 500 dollars would be split between the owner and themselves, in this way, if a new furnace or roof was needed, they had some help with it. Seems to be working out ok for them. I understand what all of the real estate professionals are saying, however I want to point out that they do not usually make money on such arrangements which are often made just between two parties, so have other reasons for not supporting them.
0 votes Thank Flag Link Thu Aug 11, 2011
Just say no to rent to own. Too many problems. If you decide to move on the property anyway, please have a lawyer look over the contract before signing. A rent to own scanario is only as good as your ability to "lawyer up."
0 votes Thank Flag Link Thu Aug 11, 2011
Chris is correct... you might as well start saving on your own rather than rely upon a rent-to-own contract, especially if you plan to finance the purchase. Most mortgage programs require specifics to be included in the lease and then allow only the portion of the rent that is above-market to be credited to the buyer. Of course there are more details and rules change as time goes on, so your best bet is to not rely upon any sort of rent credit for your down payment.
0 votes Thank Flag Link Thu Aug 11, 2011
so in that case, what would you suggest in regards to the funds that are being applied/saved. i've been i a rent to owen for almost five years I know that the funds that are set aside will not amount to much regardinng a down payment gow can i apply/use those funds to my benefit. thanks much. reply: cablerunner1129@gmail.com much appreciated
Flag Fri Jan 11, 2013
I would recommend getting everything in writing, signed by the landlord/seller. Otherwise you may find yourself doing a lot of work and nothing to show for it. Moreover, you would be well served to investigate to see if the property is a potential short sale, or foreclosure. If it is, all the work you do will benefit the lender.
Web Reference: http://www.golftobeach.com
0 votes Thank Flag Link Thu Aug 11, 2011
Be wary of rent to own. Typically it benefits the seller heavily. You have other options like rebuliding credit and buying a home for yourself very quickly. Home prices aren't going anywhere for a while so you have time.

Good Luck!
Web Reference: http://www.ajsocalteam.com
0 votes Thank Flag Link Thu Aug 11, 2011
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