My husband and I are looking at two homes and are having trouble deciding which is better for us. One is in

Asked by Jeane, Plymouth, MN Tue Aug 12, 2008

the reserve and would allow us to do rent to own the first year, putting $600/month toward principle. We think this home has a beautiful exterior, so so interior, and may be more affordable monthly, but a couple thousand over market value. The other is slightly more expensive ($5,000 more), in the Wayzata school district (the other is Osseo), but we wouldn't be doing rent to own, so we would be making higher payments that would be primarily interest. It also does not have walk-in closets which I think is important these days, especially when we go to sell. However, this one is priced about $10000 below market value. In short, we like the second one better, but feel the other may be more affordable because of the rent to own option during the first year. Any ideas?

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Julie, ,
Fri Aug 15, 2008
Beyond the rent-to-own (which I personally would not touch), Wayzata will be a better long-term investment. I'm not a real estate agent, but have been tracking the market closely as we will likely be moving ourselves in the next 1-2 years.
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Dallas Texas, Agent, Dallas, TN
Tue Aug 12, 2008
Why rent to own? If the home is over market value a lender will only approve loan based on appraised value. Many times rent to own ended in nightmares. The other property $10K below market value allows you equity if you were to do home improvements perhaps reconfigure closet space for walk ins COULD be a better option.
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Susan Hoffla…, Agent, Shoreview, MN
Tue Aug 12, 2008
I have a few questions for you. First of all, rent to own payments typically do not pay any amount towards "principal". It's my understanding that if you are "renting to own" your payments are not going toward any principal of any kind. Since you don't own the property yet, you are making rental payments monthly and the landlord has agreed to set aside a portion of your rent to build up an amount that would go for a downpayment toward securing your mortgage. After the period agreed upon (in your case 1 year) you would finish the deal and secure your mortgage using the money the landlord has agreed to set aside for you. Is that how you understand it?

It's also my understanding that the rent-to-own scenario can be riskier for new owners, too. If something should happen and you can't carry through on the purchase, you may lose the amount you've paid toward the downpayment every month.

I guess from the standpoint of an Exclusive Buyer Agent who doesn't ever have conflict by representing the seller, I would ask if you have a representative looking out for your best interests? It's hard to know what's really best for you without being close to the transaction.

Ultimately, if the finances are close, it's usually better to make a decision based on the house itself because you'll be happier in the building you really want, rather than feeling like you settled. If it was really close and you really liked the houses the same, of course the financial would tip the scale for you. I would encourage you to make sure the financial decision is sound and look at how you'll feel in this house longer term as well as how it may impact you upon resale.
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Aaron Dickin…, Agent, Champlin, MN
Tue Aug 12, 2008
Watch out for rent to owns... the seller could let the house go into foreclosure, take your money, and you could be left homeless in the end. There is no guarantee that a rent to own will become an own.

Further, financing is getting tighter and interest rates may go higher, so the house might very well be less affordable next year than it is today. Also, you get tax incentives for mortgage payments that are substantially higher than the incentives for rental payments.

I don't know if I would ever counsel a buyer to put significant expectation in a rent to own... especially in this market. If losing the house isn't a problem and/or the rent is in line with what you'd pay to rent it normally (outside of a rent to own situation) then there's no loss. Otherwise it sounds like quite a risk.
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