thinking about rent to own

Asked by Naomi Gontko, Springfield, MO Tue Aug 7, 2012

i was recently looking at houses to rent and found one that I fell in love with but it is rent to own only....i really don't know anything about buying houses or rent to own.. it's price is about $80,000 and they are asking for $2,500 down and $675 a month..anybody have any advice?

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Wolfkeepers_…, Home Buyer, Springfield, MO
Sat Feb 16, 2013
Be carful that its not a rental option because an option locks the price in for a set time.
It sounds as though you are looking for an owener finance you should have it all checked out like Rich said also get an inspection ya ever watch holmes on homes some houses are all cosmetick.
Either way good luck
0 votes
Rick Cardoza, Other Pro, Springfield, MO
Wed Aug 8, 2012
Hi Naomi,

Some things I would consider are:
1. Is it a long term rent to own? If not, when do you need to come up with financing? You may want to talk to your bank or a mortgage broker to get advice about what it would take to get a loan. Also, something to consider, is if you really do like this house and you do want to buy it, if you qualify for a loan you might offer the seller a lower purchase price for a cash offer now. He may very well accept it. Most sellers find it easier to find a buyer in this economy if they offer to do a rent to own. Also, even if he still wants $80,000 and $80,000 is a reasonable price, you will have smaller payments if you are able to get your own loan.
2. Is the house worth $80,000?
3. Who is responsible for repairs and maintenance? If you are then you need to have a budget that can handle those things (the same with if you bought the house outright)
4. What are your long term goals? Is this a place you would want to live for the next 5, 10, 30 years?
5. Who is responsible for taxes and insurance? Is that included in the $675?
6. How much of your rent is going toward the $80,000 each month? How does that compare with a loan? You may be paying 10% interest. Is that house worth that to you?
7. Read any contracts carefully and make sure you understand it. If you do not, seek legal counsel

Buying a house has it's pros and cons. Here are some:
-You own it. You can do what you want... you can renovate, you can host other people without permission, you can have pets or not have pets, you can paint... it's YOURS!
- If you stay long term someday (it may be 30 years from now!) you will have no house payments, just maintenance, taxes & insurance and you can pass it on to your kids or whoever.
- It could be an investment. You are building equity. Generally houses go up in value (depending on the economy and neighborhood, etc), If 5 years from now you decide to move, chances are you could sell your house for more than you bought it for (if you bought it at a good price). Now, the economy is not very stable right now, and if you decide to sell next year, we don't know what next year holds. We hope the economy will be going up by then, but it could still be bouncing on the bottom and you may not be able to sell for what you owe on it, so it is a risk.

- a lot of responsibility
- cost of repairs and maintenance
- less flexibility. You will be stuck with that payment and whatever other costs long term regardless of what your job situation or anything else. Not easy to just up and move to something
- and as for as rent to own goes, you are probably paying more for your home than if you had a regular mortgage loan
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Aug 8, 2012
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!
0 votes
Dale Weir, Agent, Chesterfield, MO
Wed Aug 8, 2012
I've handled rents to own, but they seldom work out. Typically whatever the reason is that the buyer can't purchase now, is still there when you reach the point in the contract where the lease ends and the home is scheduled to close. If it's a divorce type situation where you don't want a soon to be ex on the title or you have to have 30 days of employment paystubs to show the bank for a new job that the buyer is securely in, etc, you have a chance of getting to closing, but when it's a matter of the buyer not having a high enough credit score or a large enough downpayment, typically those factors still exist later.

On the buyer side, it's a bad idea because the majority of sellers refuse to sell their homes that way so the selection is very limited. Typically the selection is only homes that have an issue that can't be overcome (on a busy street, no yard, back to a dump, etc) or the seller won't overcome (foundation issues for example), so the buyer starts out with a poor selection to chose from and it's definately not the home of their dreams.

On the seller side, while the inspections are done and negotiated prior to the buyer moving in, so you have a baseline for the condition of the home, the appraisal is done less than 30 days before closing. So if you agree to a price in 2012, but the home doesn't close for 6 months to a year, the agreed upon price is often no longer a good price. That means that if the values are going up, the seller might have been able to sell for more by the time it closes, but he's locked into the lower price. At the same time, if the values go DOWN, and the home doesn't appraise, then he is required to drop the sales price to the appraisal value because the bank won't loan the buyer more money than that to buy the home. And if the buyer can't buy, the deal is off after the seller has waited for a year to close. In addition, if it's an FHA appraisal, it stays with the home for months after it's done, so if a second buyer comes through, the seller still can't sell for more than the FHA appraisal was for. The seller has to acknowledge also that the condition that the buyer keeps the home in can affect the home's value when the appraiser comes (ie if the buyer hasn't mowed the yard recently, the home is full of trash, it appears that things aren't working, etc it can affect the value)

The seller also has the problem that if the buyer can no longer buy, but they are still in the home, they have tenant rights and getting them out can become very difficult. I've seen it go as far as getting the local sheriff to evict the tenants.

Everyone is much better off, typically, if the potential buyer rents until they are able to buy the home of their choice and they have the full housing market in their price point to look at.
0 votes
My NC Homes…, Agent, Chapel Hill, NC
Wed Aug 8, 2012
I would be extremely surprised if the owner of this property would not sell the home outright. Typically the primary reason someone offers a home rent to own is because they’ve been unsuccessful at getting it sold and their anxious. I would not deal with the listing agent (they represent the seller) and definitely would try to avoid dealing directly with the owner as their definitely only looking out for themselves. You should be working with a buyer broker and if you're not, I've included a link below on how to find yourself a good one.

Rent to own is basically for people who can't afford to buy and if you can then this isn't an option you should consider. As you've stated you're inexperienced the first thing I would advise is read the article below and then start interviewing Realtors looking for an experienced Buyer Broker willing who can guide you through the process.

I wish you all the best.
0 votes
Mike Sullivan, Agent, Gainesville, FL
Wed Aug 8, 2012
In a rent to own, generally the renter is the one at a comparative 'disadvantage'....they are renting because they cannot buy....the question to ask then, for you is whether or not you can qualify for a mortgage when the time to purchase arrives....if you can, great, if not, why would you put up a $2000 deposit which in all probability will be lost if you cannot purchase the home a year from now.

If you can purchase now, you should do so...if you can't qualify for a loan, I would recommend a rental...

hope this helps!
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Becky Supak, Agent, Springfield, MO
Wed Aug 8, 2012
Ask questions about who handles repairs at the property. Does it become your furnace, your roof, your appliances? Some rent to owns are really contracts for deeds where the tenant/new owner takes over these responsibilities. You may be better off to just rent until you are in a position to qualify with a traditional lender. Then you have way more choices. Becky Supak, Murney Associates,
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