Home Buying in Minneapolis>Question Details

Calvin, Home Buyer in Minneapolis, MN

rent to own in Minneapolis

Asked by Calvin, Minneapolis, MN Tue Mar 11, 2008

I am interested in a home in NE Minneapolis that has a rent to own sign in the yard. How does this work?

Help the community by answering this question:

Answers

4
Hi Calvin- Typically, a rent to own, lease option, lease to option are similar terms. Rent to own, Lease options have very little real estate regulations especially if the landlord/seller is not licensed. Therefore, buyer beware. I suggest you have your agreement reviewed prior to signing.

Please read through to the benefits of a rent to own. This can be a great opportunity for you Calvin

Basically, you are agreeing in writing to purchase the property in a specific time period( 12 month, 18 months) for a predetermined price. Generally, the landlord/Seller will ask for a non-refundable option fee up front plus the the first months rent. The non-refundable option fee can range from 1%-3% of the selling price. In this market I've seen as low as $2,000.00 +/-. You can negotiate the option fee and rent credit. Important negotiate an 6-12 month extension to the agreement in case you have an emergency and need more time.

As smart tenant buyer will ask for a rent credit back for each month the rent is on time. Rent credits range from $100.00 to $1,000/month. The rent credit and the non refundable option fee should be credited back to you in writing so it is clear when you purchase the property. Option fee and rent credit can be used as downpayment, closing costs, loan rate buy down etc. NOTE: lender tend to only allow rent credit that is in excess of fair market rent to be considered as down payment. So if you are paying market rent as determined by the lender and the landlord/seller is crediting you back $500.00/m very likely not all or any of the rent credit will be allowed. The landlord/seller could reduce the purchase price for disallowed rent credit. However, most buyers need rent credits as portion of downpayment.

IMPORTANT: As a buyer talk to a bank or lender before you sign the agreement. You want to make sure you will qualify for a loan before the end of the option to purchase. Ask the lender a what if senerio. We have found that lenders will lay out a plan so you can qualify later on. Example: if you do this Calvin... don't make any late payments for the option period especially to the landlord/seller, pay off you car, don't buy anything on credit, etc. then we could make a home loan for this much money. Interest rates will have a big impact on your ability to qualify in the future. Calvin, Follow the lender plan. This will provide you a goal and a plan to home ownwership.

Calvin, make sure your landlord/seller is the true owner on title. Call a title company. Ask for the research dept. Make sure landlord/seller is not behind in his payments to the mortage company or property tax. There have been a nunber of landlord/seller who have taken buyer/tenants money then hav the property foreclosured. As the Buyer/Tenant will lose your money and the property goes back to the bank. You must move.

Buyer/tenants are usually responsible to for repairs to the property. So do a walk thru your self or hire a property inspector. Remember, you are buying the home. You will not be able to renegotitate the condition later on.

Calvin, you will not be able to claim any federal tax write off's during the rent to own period

Finally, Calvin if you walk away or fail to make the payments that are due or do not buy the property during the lease period you will LOOSE all the rent credit and non refundable option fee.

I know this sounds like a lot of work. But, this is a GREAT way to home ownership while you get you credit and finances in order. Besides, it is tough to get a loan now during this mortage crisis. It can only get easier in the future.

Rent to Own Benefits.
1) live in you home today
2) building rent credit while living in your home
3) get your kids settled in schools
4) satisfaction of completing a dream
5) maybe build some property appreciation if home prices rise.
6) Make yourself proud

Calvin, I have leased many, many properties for myself and for others over the last 25+ years. You can do this and be gald you did. Go to our website if you need more help
Sincerely, Bill Fliflet
Web Reference: http://www.mls-listing.com
1 vote Thank Flag Link Tue Mar 11, 2008
I would be careful with paying too much of a premium for the rent-to-own situation. If the owner of the home loses it to foreclosure you lose any deposit/down payment you put in to it and any credits to your purchase price. You have to have confidence in the person you are renting from!
0 votes Thank Flag Link Wed Mar 26, 2008
Todd- I must disagree with you. You have made a sweeping glittering generality statement which would discourage buyers from a viable method of home ownership. Also, Todd you have an opportunity to boost your knowledge and offer another method to help your sellers or buyers in a slow market. Don't discount this method so quickly, Respectfully, Bill
0 votes Thank Flag Link Sat Mar 15, 2008
Calvin, just an FYI, very few rent-to-own situations do end the the renter wning the property, and usually the dollar amount of rent which is applied to a typically inflated price for the home is minimal.

Thanks, Todd Norsted
Web Reference: http://www.toddnorsted.com
0 votes Thank Flag Link Fri Mar 14, 2008
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer