Home Buying in 28269>Question Details

christopher…, Home Buyer in 28269

is renting with the option to buy a good idea while i improve my credit score ?

Asked by christopher jackson, 28269 Thu Jan 12, 2012

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Wanderer,

generally speaking NO. I am not sure of the exact statisitic; however; I beleive it is close to 90% of people who do a rent to own do not buy the house they started out to buy. The reasons are many... I usually discourage clients form doing this for a variety of reasons.

First, you are putting up a non-refundable deposit for the house you want to buy. In addition the rent is usually inflated so that the seller can apply part of your rent to your down payment.

Second, you do not know what the future holds for you. What may seem like the right house now may not be in the future... People move everyday becuase of their needs change in regards to jobs, neighborhoods or the house they are in.

Third, you are limited in what you can rent to own. Most homeowners will nto do it. Thus instead of having a pick fo what you may want you have to choose based on what you can get. that home may not be the one you want.

Fourth, you are basing it on the fact your credit can be fixed in a set period of time. In most cases maybe. but you need to make sure you are dealing with a reputable mortgage broker that can tell you what you need to fix and help you get it fixed.

Fifth, on a lease option you are agreeing to a price for a house without knowing what the market is goign to bear in the future and usually have no negotiation power when the time comes up either.

Interest rates are constantyl changing and can affect the affordibility fo the house for you as well...if you are lookign to fix your credit and buy a house. I strongly recommend you get your credit fixed first then go look for a house to buy.
Web Reference: http://www.davedicecco.com
1 vote Thank Flag Link Thu Jan 12, 2012
I have been asked this question a lot over the years and generally recommend not to do it. This is for a few of reasons. 1) You have a lot less negotiating power on a rent to own than you do with a regular seller. 2) The seller may stop making the mortgage payments. 3) You will have a lot more homes to chose from if you wait to buy when you are qualified. I have done four rent to buy contracts and only one closed. One deal did not close because the seller stopped making his mortgage payments and the home went to foreclosure.

I wish you the best of luck with whatever you decide. If I can help you in any way, please let me know.
1 vote Thank Flag Link Thu Jan 12, 2012
Hello,
In my opinion, renting to own is not a good option. It, by far, is more beneficial to sellers having difficulties selling their homes than future home buyers. The same goes for rent to own companies. People tend to want things now and that's the whole premise of rent to own programs - why wait? You would be better served and it would be more economical to rent an affordable home, save as much as possible and repair your credit on your own instead of renting to own. Here is a link to a blog I wrote about those programs: http://www.nc-homeownership.com/archives/lease-purchase-program
I hope this helps.
1 vote Thank Flag Link Thu Jan 12, 2012
If you are truly serious about becoming a home owner, do your homework, make a plan and stick to it religiously! Save, save, save. Pay off debt, and any judgments, liens or any other items that are negatively affecting your credit score. Do not out the cart before the horse! Wait until your credit score, debt ratios, income and employment history completely qualify you to buy. You will then have a much larger pool of homes to choose from and will be able to better make the decision on the home that is truly the right home for you - emotionally, as well as financially! You will feel much more confident about your ability to be a responsible home owner and will know that you are in the home that best meets your needs and one that you absolutely love. In purchasing a home, patience is a virtue! Best success! Kathleen Turner, The Kathleen Turner Realty Group, Keller Williams Realty
1 vote Thank Flag Link Thu Jan 12, 2012
Only if you are confident in 2 things:

1. The Credit rebuilding process you have undergone is working for you
2. The home you want to rent to own is the "right one" for you and your family.

This requires that you are working with at least 2 industry professionals you can trust.

1. Your Realtor (in order to be sure you get the right home)
2. Your loan officer (in order to be sure you get to the right loan to get to the right home)
1 vote Thank Flag Link Thu Jan 12, 2012
Good morning, Wanderer.
Generally renting with the option to buy is not a good idea. It is especially true in cases where household income is under $70,000 a year or the home value under $200,000

Many rent options are based on your paying an up front non-refundable deposit and/or a monthly payment greater than "normal" rent, with the extra amount and deposit applied to the purchase price if you buy. When you buy, however, you may find that the purchase price is usually at or slightly above market rate and your options for financing are more limited than if you were buying some other property. Sometimes you discover after you move in that there are problems with the neighborhood or property that will make it so you never buy.

If you fix your credit, then buy, there will likely be more homes available for you to choose from and we can focus on properties that are priced below market values, then find the financing that works for you.

Here are some Trulia blogs to help you with credit and decide what direction to go.
http://www.trulia.com/blog/dfisher/2011/08/should_i_be_a_hom…
http://www.trulia.com/blog/dfisher/2011/08/i_have_bad_credit…
http://www.trulia.com/blog/dfisher/2011/08/ten_tips_for_repa…

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1 vote Thank Flag Link Thu Jan 12, 2012
If you can get the seller to lock you in at today's prices and credit back a portion of your rent toward the down payment it can be an option. A better option would be to work with a lender who has programs to accelerate increasing your credit score and posture you to purchase a HUD home with only $100 down or a home in USDA eligible areas with no money down. (You will be required to have a $1000 earnest money deposit that will be credited back to you toward down payment or closing costs.)

In the current housing market you can buy homes for thousands under market value if you create a strategy to posture yourself for this opportunity. If a home owner sells to you under a rent with option they are taking a huge risk that you may walk away - possibly leaving the house in less desireable condition. They will, therefore, require more money to cover their risk.

Please contact me if you need the name of a lender who will work with you to improve your credit posture and make you a candidate for the best possible purchase.

Blessings upon you...
Jan Teel
TEEL Realty
704-641-0267
1 vote Thank Flag Link Thu Jan 12, 2012
Most renters who rent with the option to purchase never end up buying the home for one reason or another. I would focus on improving your credit score and saving as much as possible for a downpayment. In our market now there are 25% less properties listed so as you improve your credit score the choices of housing for you should also improve.

Good luck and stay focused,

Debbie White
1 vote Thank Flag Link Thu Jan 12, 2012
It could be,m you need to meet with a local and trusted loan officer first, get prequailified so you know what price range you should be in as well as how long you may need, most lease purchase are only 1 to 2 years. good luck
Web Reference: http://www.ScottSellsNH.com
1 vote Thank Flag Link Thu Jan 12, 2012
The answer is no. It has no affect on your credit score. Further, in our market more than 90% of lease-purchases fail due to the tenants eventual failure to qualify for a mortgage at the end of the term. In fact, many investors understand that and use the L-P as a cash flow tool in that they never expect it to sell AND it typically gets them above-market rental rates with a tenant that has an ownership interest (treats the property better). If it sells then its gravy. If not, get another L-P tenant. You're typically better off either buying or leasing traditionally and not attempting a L-P. Call me with any specific questions. -Bill Ahls, 704-780-0654
1 vote Thank Flag Link Thu Jan 12, 2012
Wanderer,
I would recommend just renting until you are currently ready to buy. Doing a rent to own or lease purchase can cost you quite a bit up front and typically you will pay more for the home rather than waiting and getting the home when your credit is right and you are financially ready to purchase, as you loose most of your negotiating power doing a lease purchase. It does work for some, but over all most fall apart. Short answer, just rent until your credit is right, then buy.
1 vote Thank Flag Link Thu Jan 12, 2012
In many cases you pay more to stay in rent to own and wind up buying a different property.
Have you concidered living as cheaply as possible and banking a down payment for a while.
1 vote Thank Flag Link Thu Jan 12, 2012
dont listen to nay sayers..yes, call me, you have options, 803 741 4240.
0 votes Thank Flag Link Tue Mar 12, 2013
It can be a good idea. The folks who've said "yes" or "maybe" have provided a lot of useful information. I see you've given a "Best Answer" to someone who answered "no." While that answer, and some of the others who've said no, raise some valid issues, they're all issues that can be properly and safely dealt with.

Let me give you a couple of examples. (And please understand: I'm not "picking on" those who've provided these answers. I'm actually pleasantly surprised at the quality of answers on both sides, rather than a knee-jerk "It's a bad idea." It's just that there are ways to deal with these issues.) Example:

CONCERN
On a lease option you are agreeing to a price for a house without knowing what the market is goign to bear in the future and usually have no negotiation power when the time comes up either.
RESPONSE
That's true. However, you build your negotiating power into the option. You might, for instance, agree to an extension of the option for another 1-2 years if the house doesn't appraise for the agreed-upon purchase price at the conclusion of the option. Or you and the seller might agree that if the value of the property isn't as high as the option price, that you'll pay for an appraisal and the seller agrees to sell the property to you at the appraised price. Or if the property fails to appraise, the option fee is refunded to you. There are other ways to address that concern, too. The important point is to agree on one and to include it in your option agreement.

CONCERN
You are putting up a non-refundable deposit for the house you want to buy. In addition the rent is usually inflated so that the seller can apply part of your rent to your down payment.
RESPONSE
Yes, you are putting up a non-refundable deposit. That's the option fee. But it is buying you something very valuable: The right to purchase the property in the future for a set amount. Whether you choose to buy is entirely your own decision. As far as the rent being inflated, maybe yes, maybe no. It's all negotiable.

CONCERN
"in our market more than 90% of lease-purchases fail due to the tenants eventual failure to qualify for a mortgage at the end of the term. In fact, many investors understand that and use the L-P as a cash flow tool in that they never expect it to sell AND it typically gets them above-market rental rates with a tenant that has an ownership interest (treats the property better). If it sells then its gravy. If not, get another L-P tenant." AND "it is close to 90% of people who do a rent to own do not buy the house they started out to buy."
RESPONSE
I've heard numbers all over the place--only 10% close, only 20% close, only 30% close. I'm not aware of any really solid numbers, though my impression is that about 35%-40% succeed. But maybe in North Carolina, it might be only 10%; I don't know, though I do know it is higher in other areas. However, Bill (who spoke about investors) raises an important point: Some lease-options are set up to fail. His scenario probably doesn't describe the majority of such arrangements (I don't think it does) but he's right about some of them. So the tenant-buyer really has to protect him/herself. Make sure the rent you're paying isn't greatly inflated. Make sure a reasonable amount (perhaps 20% or more) of what you're paying is being credited toward the purchase price. Make sure the option is for long enough (3-4 years) to give you a chance to clean up your credit. Those sorts of things. If you do those things, your odds will improve substantially.

CONCERN
If an owner is interested in selling their home that you are renting then at ANY time during the tenancy you can offer to purchase the home.
RESPONSE
Yes, but you have no protection and no assurance that the owner will be interested in doing so. With a lease-option, you KNOW that you can buy the house. Further, you know what the price will be.

CONCERN
Sometimes you discover after you move in that there are problems with the neighborhood or property that will make it so you never buy.
RESPONSE
Absolutely true. But the same thing can happen if you buy. At least with a lease-option, you CAN move. All you've lost is whatever option fee you paid at the beginning (and any extra rent you paid). On the other hand, what if you buy and then discover those problems? You're probably locked into that property for a long time with no way to get out of there. In fact, I'd argue that this is one of the big advantages of lease-options.

In the past, I've been pretty harsh about some of the criticisms of lease-options. The responses here, in contrast, raise good points. My point, though, is that the concerns that are raised here can be dealt with in a way that protects the tenant-buyer.

Hope that helps.
0 votes Thank Flag Link Thu Jan 12, 2012
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
I would say generally not a good idea. There are many pitfalls to both the owner & the tenant in this type of arrangement. If an owner is interested in selling their home that you are renting then at ANY time during the tenancy you can offer to purchase the home. When you are ready to purchase it would be best to retain the services of a buyer's agent as there are many more things to take into consideration at the time of purchase then when just renting.
0 votes Thank Flag Link Thu Jan 12, 2012
I just wanted to add something....most people have a negative view of lease purchases because, in the past, most did not end up in a sale. But, this was in the day that just about anyone with a pulse could get a loan - with no doc loans, 100% financing and other types of lending, if you could not get qualified, you had some major issues with your credit and/or income. However, in this market, I am seeing qualified people that have had temporary issues ruin their credit so that they can't buy right now, but can usually within 6 - 24 months. Lots of people have lost jobs due to downsizing - this may have triggered a short sale, foreclosure, bankruptcy or just a few collections on their credit. Once these people are working again, they are back to being responsible credit risks and their credit is going to improve, and they are dead serious about purchasing the home. So, I think lease purchases will start to be viewed in a new light!
0 votes Thank Flag Link Thu Jan 12, 2012
It is a great idea as long as you are following the steps necessary to improve your credit. As you probably know, if you are already working with a lender, there are programs you can be in where they will teach you and help you to get to where you need to be to get approved for a loan. Best of luck to you!
0 votes Thank Flag Link Thu Jan 12, 2012
YES! You can find the home you want now, move in and close later! With buyers market pricing, you don't want to wait to make a purchase. But, having said that, you need to be sure you are prepared to be disciplined enough to get your credit to the point that you can get a mortgage within the timeframe in the contract. There are some other risks that can be involved in a lease/purchase, but with the help of a good Real Estate Broker, you should be able to overcome most potential issues. I have done several lease purchase agreements over the last couple of years. The nice part is that you can be as creative as you want - as long as buyer & seller agree (and it is legal!) you can pretty much put together whatever deal you want. If you would like help finding a seller that will accept these terms, and help putting a deal together, I will be happy to assist!
0 votes Thank Flag Link Thu Jan 12, 2012
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