Rentals in Arlington>Question Details

cyndi90210, Home Buyer in Arlington, TX

How safe is rent to own properties??

Asked by cyndi90210, Arlington, TX Wed May 29, 2013

I am interested in purchasing a home in a rent to own program. I'm tired of renting but my credit history is not that good. i'm currently working on it now. My lease is up October of this year for the current apt i'm living in. Should i just wait until i have a higher credit score and wait until the eviction i had on my record from 2008 to clear off? what are my options?

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I would personally aim any potential buyer from the thought of renting to own. For one there is just alot to risk and alot really depends on the morals, ethics and character of the owner themselves. Example: 4 yrs back there was a gentlemen in Fort Worth who own a dozen or so properties by Texas Wesleyan University. After a hail storm passed through he filed an insurance claim, pocketed everything and disappeared. The tenants reserved no rights to prosecute due to the limitations in the contract it self. If you do proceed forward with rent to own I suggest you get a very strong attorney and do your research on the owner to ensure this doesn't happen to you. Let me know if there is anything I can do to assist you.

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0 votes Thank Flag Link Fri Jun 7, 2013
I'm a fan of rent to own, and mostly for the reasons Trevor alludes to. It's a viewpoint issue (ie: is the glass half empty or half full?). I view being "locked into the house price" as a good thing. I seriously doubt that prices will be lower in the next few years. I sold my Virginia home through such a vehicle about a year ago...boy did the buyer get a good deal! Prices have been rising and I would ask a LOT more today for that house, but the buyer locked in that lower price. You can't lock in today's interest rates, but you can lock in today's prices. And the saving scheme is a good one too, because for most people with bad or no credit, forced savings is a great way to overcome their savings difficulty.
0 votes Thank Flag Link Wed Jun 5, 2013
Good morning cyndi90210,

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.

Trevor Curran
NMLS #40140

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0 votes Thank Flag Link Wed Jun 5, 2013
I have a program that will buy any house you pick out and rent it to you until you are ready to purchase it..Call me Howard Weiss 972-567-1591
0 votes Thank Flag Link Wed Jun 5, 2013
You'll get a lot of opinions on that one. However, first: You can't really do lease-options in Texas. There are state laws that severely limit lease-options (sometimes called rent-to-own programs).

Beyond that: If you can get in a position to actually buy--acceptable credit, a downpayment, and so on--within 6-9 months--it's better to wait. I'm a big advocate of lease-options in the right circumstances. But if you're really close to qualifying for a loan, then wait.

To address your primary question: Are they safe? Answer: Yes, if constructed properly. You really should have a lawyer protecting your interests. Keep in mind that only an estimated 30%-40% of lease-options ever actually result in a purchase. Usually, that's due to the tenant-buyer: he/she changes his mind, doesn't clean his credit up as he needed to, moves out of state, and so on. Very few actually fail because of the owner/seller's actions.

But back to protecting yourself. Again, check with a lawyer. But, for instance, you want to make sure that the owner can't sell the property out from under you. The strategy for you is to "cloud the title" with a filing in your local courthouse, either with the actual option or, preferably, with a notice of option.

Although prices are going up now, you want to protect yourself in case the property doesn't appraise for the full amount. There are lots of ways to do this. You might write into the original option that it can be extended if the property doesn't appraise. Or that the price will be reduced to the appraisal amount.

You want to make sure that the owner keeps making payments so that the property doesn't go into foreclosure. There are several ways to do this--but you need to choose one of them.

You can accomplish something quite similar to a lease-option using a landtrust. There's a lot more paperwork, but it's a lot safer. And, properly constructed, landtrusts are OK in Texas.

Here's a link to a blog I wrote on how to find lease-options/rent-to-own properties: http://bit.ly/findaleaseoption

Hope that helps.
0 votes Thank Flag Link Wed May 29, 2013
Don Tepper, Real Estate Pro in Burke, VA
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