Rent To Own is a better deal for the Seller than it would ever be for a potential Buyer.
The basic concept is finding a way to "force" savings towards a down payment by including a portion of the monthly rental that goes towards that savings. You pay your rent every month and your Landlord deducts a pre-determined amount to hold in a special bank account, called an "escrow" account. Your Landlord holds that money until you have saved up enough---through this "forced-savings" method---to meet a down payment to purchase the home.
The terms of the purchase price, including the down payment amount, and the amount to be set aside from the rental for down payment, are all set down at the time of lease signing.
It's all about helping the renter/tenant save up enough money for a down payment to buy a home (in this case, the one you're renting). But this is a better deal for the Seller because he gets to lock in a purchase price and a buyer today for a future sale.
Saving money for a down payment? Well, heck, you can do that on your own.
If you are dedicated to the idea of buying your own home, you can create your own savings plan to save up enough money for a down payment. And when you have saved up enough for a down payment, if that takes a year or two or more, YOU get to decide on the price you're willing to pay for the house at that time based on current market conditions. You won't be locked in to a price that may be a lot higher than what the house is worth in the future.
With Rent To Own you'll be locked in both to the house and to the price, even if it takes you 3 years to save enough through the forced savings of the rent payments. What happens if three years from now your life situation has changed? Maybe you need a bigger/smaller home. Maybe your employment has relocated. Maybe your credit or income is insufficient to qualify for a mortgage loan.
Find a way to save up on your own; not with Rent To Own.
Sit down with a local Mortgage Banker and get yourself prequalified, too. You may find you're better qualified than you think you are, and, if you're not, at least you'll know how much loan your income and credit qualify you for, and how much you have to save towards down payment and closing costs.
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I do not suggest doing lease purchases/rent to own. There are simply way too many things that can go wrong with one from either side.
In order to do true owner financing, the owner must own the property free and clear of any mortgages. Very few sellers are going to be in that position.
If the property currently has a mortgage on it, the owner cannot legally transfer the title to a buyer without the mortgage first being paid in full. Most all mortgage loans have a due on sale clause. This due on sale clause requires that the mortgage be paid in full should a title transfer occur.
The buyer is also at great risk on a lease purchase transaction should the seller quit making their mortgage payments. Right now, many sellers cannot afford to make their mortgage payments or simply chose not to continue making them. I have seen where the buyer is making their rent payment, but then the owner is not paying the mortgage. The next thing the buyer knows is that the home is in foreclosure. That means the buyer will generally not get back any of the money they have given as earnest money or security deposits.
It is also a big risk on the buyer. If your credit is not where it needs to be now, there is no possible way of you knowing it will be acceptable in a set amount of time.
Before entering into any type of agreement like that, the buyer needs to make sure that they fully understand the potential pitfalls that could arise. Should the seller default on the mortgage, the buyer could lose ALL of the money that they have invested. Until you are able to purchase, renting is generally the safer option.
To begin improving your credit score, you would need to contact each of your creditors directly to see what your options are. Paying off derogatory debt will help improve your credit score in the long run, but not immediately.
With collection accounts, most of the damage is done when they are initially placed on your credit report. Some collection companies are now reporting you are late each month the debt goes unpaid. This continues to drag on many peopleâ€™s credit scores each month until the debt is paid in full. Until you do that, your credit score has little chance of improving.
In exchange for paying the collection account in full, you can try to negotiate to have them completely remove the derogatory item once the payment is received. Some collection agencies will do this, while others will not. You will just have to ask each one and see. If they will not remove it, just having it paid and closed will help in the long run.
All liens and judgments will also need to be paid in full. These impact the title position of a mortgage so they must be satisfied.
It is very important that you be VERY careful in disputing accounts. You cannot dispute accounts which you know to be accurate. For a mortgage, you cannot have an active and open account that has a disputed status. Fannie Mae/Freddie Mac/HUD all have very specific guidelines to be following when a borrower has an account in a disputed status. In some cases, it could cause you not to be able to qualify.
To build positive credit, you typically need to have 2-3 trade lines reporting for 12-24 months. There should be no late payments or other derogatory items reported in the last 12-24 months. On your Revolving credit accounts, your outstanding balance on your monthly statement should not exceed 30% of the credit limit.
Working with a knowledgeable and seasoned loan officer is critical in today's market. Getting Pre-Qualified is the only way for you to find out your options. To get Pre-Qualified for your purchase once you are ready, you can submit your request online at http://www.rodneymason.com.
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 with over a decade of mortgage lending experience.
Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203(k) Renovation (Streamline & Consultant) | HomePathÂ® | HomePathÂ® Renovation | HomeStyleÂ® Renovation | VA | USDA | GA Dream | Jumbo Financing.