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Oak Hill : Real Estate Advice

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Activity 2
Thu Jul 25, 2013
Trevor Curran answered:
Good morning Karen,

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
Mobile: 516-582-9181
Office: 516-829-2900
Fax: 516-829-2944
PowerHouse Solutions, Inc.
1010 Northern Blvd. Suite 234
Great Neck NY 11021
Licensed Mortgage Banker – NYS Dept. of Financial Services
NMLS#3528

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Wed Jul 24, 2013
Tony Grech answered:
It will impact his debt to income ratio if he goes to buy a house.

Rental income may be used to offset a mortgage liability though. If he wants to buy a home this year, then he will have to provide a signed lease along with cancelled checks for rent. DO NOT EVER give him cash! Always pay via check or money order and have him make copies of all checks received. If he wants to buy NEXT YEAR he will have to file a tax return and report the income on schedule E. He'll need to have all his t's crossed and i's dotted though, because an underwriter may not like that the home is rented to relatives. That may raise some red flags so please be prepared and keep a paper trail of everything.

Also, make sure he is not claiming to occupy the home on his mortgage application. This should be financed as a rental property.

Finally, I'm presuming he will want to use his VA eligibility to purchase a home of his own. Please make sure he is not using it on this home, since that will preclude him from using it when he buys his own home.

Hope this helps!
Tony
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