Everyone doing rent-to-own is probably going to have their own way of doing things, and as in every type of service out there, some know what they are doing and others don't.
We do rent-to-own transactions full time, and with ours, 100% of the down payment goes towards the purchase price of the home. Then, depending on our sellers, most will allow 10% to 20% of the monthly rent to count towards a further reduction in the purchase price.
As a general rule, with our down payments, we require a minimum of 3.5% of the purchase price of the home or $5,000, whichever is greater, to be put down upfront, plus full first months' rent. Again, 100% of the down payment counts towards the purchase price of the home.
We have a frequently asked questions page on our website if you would like to read more about how a property rent-to-own (lease with an option to buy) should work. Go to http://www.BuyBaltimoreProperties.com/faq
The other responses you have before mine are all wrong.
Delaware, has laws already established for rent to own...
You have to talk to an attorney to get all the very simple facts of the matter...
I would recommend Jim Woods or another full time real estate attorney...
Again, I this is actually a very simple question and answer but since I do not represent you I cannot give you the full answer without crossing the law and practicing law without a license...
So, contact a real estate attorney and pay them approx. $500.00 to represent you in this transaction.
Okay, here goes, if the rent is $1000 a month and the seller is giving you a credit of $55 per month then at the end of the first year your credit towards the sale price is 12 x 55 = $660. You apply for a mortgage and expect to use that $660 as part of the down payment. If the underwriter says the fair market rent for the house was $1,000 he/she will not allow you to use the $660 towards down payment in order to qualify for a mortgage. You can lower the price of the home by $660 which is what the underwriter will do, but you still need to make the minimum down payment in addition to credit. Pretend the sale price is $100,000, the minimum down payment is $3,500 on an FHA loan. If my example above holds true the sale price is lowered, $100,000 - $660 = $99,340. You would still need 3.5% of $99,340 or $3,476. The amount of down payment you will need only decreases by $24.
His current mortgage payment has nothing to do with what you will owe when it comes time to get your own loan. See below
NMLS # 6395
Financing Kentucky One Home at a Time
Not sure why the owner is asking for a down payment. Normally the owner asks for a deposit or option fee. Then they usually add an extra amount to the monthly rent each month and add that up to put towards the purchase. The option fee (or deposit) is a fee you pay the owner so he holds the house for you and does not sell it, you don't get it back. In a year, or agreed time frame, you must be able to go to a lender and get a loan to buy the house. This is usually where it all goes bad. The house must appraise for the agreed amount or the bank won't lend or the renter can't get a loan. This then puts the renter in default and they lose the option to buy and they lose all the extra money they gave the seller. Rent to buys always favor the seller and they rarely work out for renters.