I see you're from Illinois. Are you relocating to Atlanta? Rent to Own is probably the most risky way to buy a home and with a Short Sale involved, it's almost sure disaster. If you want this townhome, you need to buy it outright. For one thing, you can probably get it cheaper now than later. In a Rent to Own or a Lease Purchase you are guessing what the property will be worth somewhere a year or two down the line. In his market that is all but impossible..
The first hurdle would be to get the seller to agree on a price. The seller will have no incentive to sell it to you for what the Bank will accept for a Short Sale. That would leave him walking away empty handed. The second hurdle would be to get the Bank to agree. Most Banks are not going to look favorably on this kind of arrangement. Thirdly, if the seller defaults, you may lose everything you have in the property. In most cases a property is sold subject to a lease but I'm not sure that applies to a Short Sale or a foreclosure.
The safest way for you to acquire this property is to buy it outright using a Private Lender. They will require a larger down payment than a Conventional Mortgage Lender and their Interest rates are higher but, provided you have the income and the price of the property as Appraised is within range, your credit scores will not matter.
May I suggest that you contact a Lender that I have worked with in the past with great results. They are a licensed lender in the State of Georgia and have placed many Home Mortgages here. They will lend up to 12 years on a Residential Mortgage, giving you plenty of time to get your affairs in order and not have to deal with a Rent to Own. They will not include a pre-payment penalty clause in their agreement, allowing you to refinance at a more favorable rate as soon as you can quality. You can give them a call and clarify some of the issues and see if they can help you. Their contact information is:
The Westmoore Group, LLC
Ph: (646) 801-6190
Fx: (646) 619-4291
The Westmoore Group, LLC is a licensed lender in the State of Georgia and operates under the license #30544.
Rodney Mason, NMLS #151088
Sr Loan Officer
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia
Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePathÂ® | HomePathÂ® Renovation | HomeStyleÂ® Renovation | VA | USDA | GA Dream | Jumbo Financing
Let's say the amount owed on the townhouse is $300,000. But it's only worth $200,000 in today's market. The reason the owner is doing a short sale is because he can't find any buyers at $300,000. All they're willing to offer is $200,000.
You come along. First, a short sale can be highly risky is the seller is having trouble making payments. If he defaults, he loses the house and you are left out in the cold.
But let's say, even though the seller is claiming a financial hardship, he's current on his payments. You negotiate a rent-to-own. But at what amount? There'd be no reason for the seller to sell it for $200,000. It's still have to be a short sale when it came time for you to buy. After all, he owes $300,000 on it. And there's no incentive for him to do a rent-to-own today with you. It's a short sale today; it's a short sale six months from now.
So, do you and he negotiate a price of $300,000? That'd be fine for him and terrible for you. Let's say you're ready to buy in two years. The value's gone up a bit, to let's say $220,000. But you've agreed to buy for $300,000. You apply for a mortgage. The appraiser comes out and finds that the house is only worth $220,000. In other words, it won't appraise for what you've agreed to pay. You won't get the loan.
As for doing a short-term ("several months") rent-to-own: That's a terrible idea in any case. What if your scores aren't where they need to be in several months? You lose. A rent-to-own should be for at least two years. That gives the buyer time to clean up his credit and have a cushion in there in case something goes wrong.
My suggestion: If you really want the townhouse and think it'll only take several months to improve your scores, then gamble and submit a regular purchase offer. Even conventional purchases take 45-60 days to close. Short sales typically take longer--3-6 months, if not even longer. If you really can clean up your credit in a couple of months, make the offer now and gamble (I'm using that word deliberately) that the short sale and bank approval take long enough for you to get your scores up . . . and that the lender even approves the short sale.
Hope that helps.
If they did make the payments and when you are ready to buy, there is still going to be more owed on the house, how is that going to be paid?
I don't recommend a rent to own on a short sale.