There are also incredible homebuying programs which not all Realtors and lenders promote which allow buyers the opportunity to purchase with very little as long as they prove their credit worthiness.
These are outstanding opportunities ... for the property owner! All the risk is on the tenant/buyer, and the landlord/seller still retains the house in the event of a default, in addition to keeping all the money. In this market, there are few if any such homes available. With properties selling almost as fast as they're listed, why would an owner enter into such an agreement, when he/she can cash out and be done with the place in a matter of weeks? If by chance you ever come across one offered as rent-to-own, it would likely be in a less-than-desirable location, have serious issues, or both. Contrary to common belief, little or none of the rent would be credited toward the down payment, the interest on the sale portion would be at least twice the going bank rate, and you'd still have to qualify for a mortgage in a few years to pay off the owner (it's referred to as the "balloon").
I assume that you're considering this transaction because you do not have a sufficient down payment at this time. The last thing you want to do is to purchase a home on a shoestring, irrespective of the type of financing used. I always recommend that potential buyers figure their current monthly expenses to the dollar, then add 15%. If the number is comfortable, it's reasonably safe to proceed. Of course, the down payment would need to be in liquid cash ... I always advise my buyers to have 6% to 8% of the sales price at hand for an FHA-insured loan, to cover all upfront costs including the down payment. Using $150,000 as a base, you'd have to show $9000 to $12,000.
My advice is the same as the others' ... continue leasing until you've accumulated sufficient cash to proceed with a purchase. Keep your FICO score at least in the mid-600's (of course, the higher the better) and focus on the objective. You'll be there before you know it. I wish you well.
You will be asked to give a NON-REFUNDABLE deposit upfront - and/or an amount of rent over and above the normal rent.
This overage (not all the rent you pay, only the amount over the usual amount) will be applied to the purchase if you buy the home........
if you do not buy the home for ANY reason, you will lose your deposit money!
So, if you cannot qualify for a loan now, you better be sure you will qualify at the end of the lease or you will lose your deposit.
Also, the sale price is decided now, not later, when you might be ready to buy.
You will also have a very limited choice of homes as most sellers who can, and want to sell, sell now not later.
There are a number of other pitfalls, so I suggest you make sure you understand what is involved in this kind of arrangement.
I'd advise you to rent for now.......get your financial house in order.....and buy when you can do so in the normal way.
It does not work!
Rent to own is a very complicated transaction that requires attorneys, a FOR SALE contract with an agreed to sales price, closing date, temporary leasing for just a month or two before closing, a large deposits that are non-refundable if you don't close and more.
Most future buyers simply rent and then discuss buying the home later after the tenant has secured financing through their own lender. Getting owner financing is tricky and can be a possible rip-off to you as well.
If you cannot afford to buy due to a lack of funds, poor credit scores or low income, then don't do it. Get yourself financially prepared a good year before you buy. To see the steps, visit my buyer's page on my web site. http://www.markknowshouston.com/buyers_roadmap_01.php
Bernstein Realty, Inc.