Rent to own: You are a renter. You have no claim to the property other than living there and paying your rent. You have an arrangement with the seller that you'll pay a little "extra" on your rent to be put in to escrow for your down payment. If you should want to change the deal at any time, the seller gets to keep any money you've paid toward your downpayment.
Contract for deed: You have arranged an actual mortgage with the seller. The deed has been transferred in to your name. You are making payments to the seller for a finite period of time. You have put up a downpayment. And, if you default on your mortgage payment (just like with a traditional mortgage) you stand a chance at relinquishing all rights to the property to the seller, to whom you've been making your payments.
Does this make sense?
As for renting or buying, only you can decide what feels right for you. This might be a great time to buy, BUT, if it's not right for YOU, it isn't the right time to buy.
Good luck, Duck!
Certainly if you are qualified now for a loan, then you will be able to make low offers on listed active houses in the MLS, and probably be able to get a good deal.
If you are not qualified now for a loan, then renting to own or doing a lease with an option to buy (same thing) is the next best thing vs. just renting (i.e., if you ultimately want to become a home owner). Depending on the company/person that you do the rent-to-own with, you will have a rental phase of your contract and a certain time period in which you will need to get a loan to purchase the home, and exercise your option to buy.
The great thing about rent-to-own when structured properly is that you lock in a price today that is good for a certain time frame (e.g., 12 months, 18 months, 24 months). This gives you time to work on your credit so that you will be able to get a loan to purchase the home per the terms of your agreement.
No one knows whether the price for the home in which you do a lease with option to buy will go up or down during your rental phase. If it goes up, you get the appreciation/equity, and if it goes down, then you do not have to exercise your option to buy, unless the seller will lower the purchase price to the appraised value at the time you obtain your loan to purchase.
With a typical rent to own situation, you will have to put down a non-refundable down payment/option fee, but that option fee should count 100% towards your purchase price. For example, if you had the option to buy a $200,000 home and put $10,000 down, then you would need to obtain a loan for $190K when you exercise your option to buy.
We have a lot of FAQs on our website below if you want to learn more about rent to own.
Good luck, my friend.
PS a cheaper house is not always better, and neither is an expensive one. It all depends on the condition of the property.
The average owner is 31 to 46 times more wealth simply due to creating equity in their home.
Please call a professional Realtor to get an understanding of the market and how it applies to your situation.
Pay yourself instead of someone else. A millionair once told me that his tenants go to work everyday for him; even though his tenants had a job elsewhere; his statement was that they go to work everyday for him to pay his mortgage off, so they really were working for him.
And now is a great time to buy.
A good REALTOR who has knowledge of money available to assist with down payment and closing costs through local programs. Mortgage lenders also know of available money, if there is any around. I like to share as often as I can that here in OKC Metro through community action there is a program that is for home buyers, or to start a small business, or for education; save $2,000 and the government will give $4,000 to assist getting into a home, or start up a business, or education.
What a huge gift.
Interview REALTORS and mortgage lenders to assist with your purchase, if that is what you decide to do.
I know many of you out there believe that you can not buy a home, so you have accepted the idea that renting is your only option. For some of you renting may be your only way to go, but for the most part you really are underselling yourself when you rent.
Most Reantals these days requires both a credit check and a background check, simply puit, if you can pass the credit check, you may also have had good enough credit to buy a home. So as you see most rental companies and property managers have checked your credit to see if you would be a good renter, basically that you are good at paying your bills and are financially responsible. The same qualities a bank or mortgage company would look for in granting you a loan.
Now lets get to the meat and potatoes of the renting game, the rent itself, you are paying someone for the opoortunity to live in their dwelling. No one would do this for a financial loss, so lets see what we have. We will take the 2 bedroom/2 bathroom/ 1200sf home that is on the market for $750 a month. It is nice, roomy and close to all the places you need to get to. It is exactly what fits your needs. Now sit down and take out paper and pen and join me in some number crunching. The home you have just rented is an average home lets say it was built in 1987 and has some nice features like tile livingroom, kitchen, and baths, with Carpet in the bedrooms. Fairly easy to keep clean, the Appliances are not too olf we say they are between 5 and 10 year old, the counter tops are formica and the cabinets are wood finish. This house is basically one of many so we have a little room here to do a CMA, and as we find out this house would go on the market for lets say $75,000 and this price is for the most part what the last three homes went for in this or similar area. Back to the rental part, you would have been asked for a money down package of first month, last month, and a month amount for a deposit so you would have had to come up with a $2250 initial payment to move in.
We have most of the numbers we need to make a few equations to see what would be better for you. First had we decided to buy and used an FHA loan we would have needed 3.5% down so what would that be on $75,000, which would be $2625, WOW! that is not much more than the Upfront money for the rental. Okay $375 more but this is something you can live with when you realise that you 30 year motgage at 5% will be just under $400, okay you need to pay property tax, lets say $1200 a year after exemption, so we add that with the mortgage and we now have a little less that $500 a month, Lets add another $1200 a month for Insurance and PMI which adds another $100 per month onto your monthly payment, so now we have a payment just under $600 per month, which means you have saved $150 a month or slightly more than that per month, over $1800 per year, plus you can deduct you interest from your taxes, so the savings will be more $3000 per year just because you purchased instead of rented. Now lets say you stay here for 10 years and then decide you want to live in a better home, what does renting give back, $0,00 you got it, that money is gone, it is not yours any more. Ten years puts us at 2021 and at that point if you paid only what was require on the mortgage you home would have a principal (Amount Left on the Loan) of about $57,000; your House has also gained in value, at lets say 4% a year, to show a value of about $107,000 when compounded and for easier calculation. So after 10 years you walk away with $50,000 in your pocket. You can basically say at this point that it cost you only about $150 per month for all the time you lived there. These numbers are for example and should not in any way be consider to be totally accurate.
Now what if you were a first time buyer, and there was either a down payment assistance program like SHIP or there was a first time buyer assistance program like in pasco county where you could have qualified for up to $20,000 - $50,000 in interest free, first time buyer assistance, well then you would have saved much more and possible net much more at closing 10 years later. Again, if you reant the same home for 10 years and then decide to move, rent gives you nothing back, your home would have given you as much as $50,000 back which would be a great down payment on an even better home!
I am not trying to push anyone into something they do not feel comfortable with, but I am trying to educate you on the financial gains that can come from buying over renting. Sit down with someone you trust and do the numbers, they speak for themselves. Want to learn more or ask questions just call me and I will answer what ever questions you have, 727-457-4015
I hope that more of you who are thinking of renting will at least look at the thought of buying, and at least understand that you can become financially better off with buying.
I know there are many people out there using the term "rent to own" but be careful. There is a big difference between being a tenant and a being a buyer. If something goes wrong, will you get your downpayment back? Maybe not. What happens if your landlord/seller goes into foreclosure? Who pays to fix the furnace if it breaks? If something happens and you can't make a payment, do you get kicked out in 30 days and lose all of your investment or do you have a few months to try to get caught up? There are just too many undefined situations to risk your hard earned money.
Research renting and then research owning. Then make a choice based on what is best for you. Contract for deed is a good option, but because they must be owned free and clear to be offered as a Contract for Deed in the first place, there aren't very many available.
And remember when you own, you are responsible for repairs, maintenance, property taxes, and insurance. Do you want to have to buy a lawnmower, snowblower, etc? What is your lifestyle like? This is a very personal issue and you want to make sure you can live with your choice after the fact.
Check out some of these websites:
Go on over to my Blog (it will be the web reference below) where I have been recently writing some articles on this topic. Should be good info for you and anyone else in the same position!
As always, if you would like to contact me directly for any questions just hit my ICON and find me on Trulia.
1. Do I plan on living in a property 10 years or more?
2. Have I worked at the same occupation for 2 years or more?
3. Have I saved some money for an emergency situation?
4. Have I saved money for downpayment or do I have a 620 credit score or higher to qualify for downpayment assistance?
5. If you have a low credit score are you will to pay more for a home and higher interest rate?
Anyways, the buyer who eventually ended up buying the property got seller concessions around 3%, and then between the MHFA combined with Brooklyn Parks DP assistance program you want to know her closing costs?
$750 bucks just plain sick and this was for a 264k home.
Rent to own is the worst way to purchase as a buyer as most of the benefits are on the seller's side. A Contract for Deed purchase is more equitable for you as a purchaser. With so many grant programs why not take advantage of them. Crossing the border to Minneapolis there are homes you can purchase, if you qualify for the programs, for $1000 down.
At the 125k price point you can buy at least a 3/2/2 attached garage with either a deck and/or walkout with a total close to 1,900 fin sq. ft Split Bi-level. These homes were selling in the low to mid 200's in 2005.
So in my opinion, it would be cheaper to buy a house (at least in my primary area) then renting the same home. I can't speak for other communities because I do not know enough about the areas.
and a rent to own is not the same as contract for deed Matt, although many times the seller will offer financing in the end and it easily can turn into one. I personally would not do this because the rent to own route you will probably be asked to pay a higher down payment, and also you will be paying a premium that probably is higher payments then what you could get just buying.
Just my thoughts. Feel free to contact me with any other questions you have.
The rental market is very strong right now because of the in-fluidity of credit and financing, causing many potential buyers to rent instead of buy. If you can get conventional financing, you are much better served by buying in this market.