Rent to Own program

sequoias

sequoias

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Hey peeps. I have a question. What about rent to own program? I have no idea how it works or it is a scam or what? I don't know. Is it worth the money? I assume the part of the rent amount goes to the down payment on a home? Does the payments go up after getting option of owning a home?
 
I have no idea how it works, but I'm very curious about it, too. How long would it take compared to mortgage? Etc. Hoping to own a house in the next 10 years.
 
Be careful with it, but it might work out. Typically a "rent to own" program is when someone wants to sell their home but a potential buyer doesn't have enough cash for the down payment. The seller/landlord agrees to write a lease where the rent is higher than market-rate rent for the area. Some percentage of the total rent (typically the difference between the market-rate rent and the amount charged, or perhaps a bit more) goes into an escrow account that eventually becomes part of the buyer/renter's down-payment.

For instance, let's say market rent for a given property is $1,000 a month. The seller/landlord charges $1500 for a rent to own program, and gives a credit of $500 a month (or could be more) to the buyer/renter that eventually is a credit toward the down payment.

At the end of a certain time period, the buyer/renter has the option to buy the house. However, if the person decides not to buy, then all that extra rent he was paying reverts to the landlord, not to the buyer. It basically compensates the seller/landlord for keeping his property off the market for all that time.

In a period of rising property values, this might work out very well for the potential buyer, by locking in a given price. In a period of declining values, not so much.

And if you change your mind about buying, then it works out very badly, because you are out all that extra money, and further behind than you were when you started.
 
There are programs with sweat equity, where you do a certain amount of hours of work and then get to buy a house with lower payments and I think no down payment.

Habitat for Humanity?
 
Wirelessly posted (sent from a smartphone. )

Thanks for explaining how it works. Is it easier to get than a house that you pay down payment on your own?
 
No, it's usually easier to get a house where you can come up with your own down payment. If you qualify for an FHA loan, you can keep your down payment to a minimum, maybe only 3%. But then you will have to pay a premium on your monthly payments, for having less than 20% down.

Rent-to-own programs have risks for both the seller and the buyer. One thing to consider is if your financial situation is such that you can't come up with your own down payment, how ready are you to take on all the financial responsibilities of home ownership (property taxes, maintenance, etc.)? How sure are you that you definitely want to stay in that area long enough to commit to buying a home that you can't yet afford? How do you feel about taking on that risk of possibly losing all that extra money paid to the landlord?

Me personally, I wouldn't do it. I'd rather look for the cheapest, smallest rental I could afford, and put my extra money into the best savings account I could find, until I had enough for a down payment. The risk with that plan is that if home prices keep going up by more than what I'm saving, I might never reach that point of having "enough." But I personally would rather face that risk rather than the risk of losing all the extra money to the landlord/seller, if I change my mind, lose my job, decide I want to live someplace else, etc.

It's a personal decision. You have to consider carefully your own situation, and what home prices are doing in your area (increasing, declining, holding steady).

Back in the '80's, when home prices were going up by tens of thousands of dollars, year after year, rent-to-buy made more sense than it does today, when home prices are holding steady or declining.

You just have to know your own area, make your best guess about your own personal situation, and see how the pluses and minuses shake out.
 
sequoias said:
Wirelessly posted (sent from a smartphone. )

Thanks for explaining how it works. Is it easier to get than a house that you pay down payment on your own?
Click to expand...


Depends on the market you are in usually. In Iowa I would guess it would be about the same..... But.... I think rent to own is a very bad idea unless you are doing a new home direct from the builder. Even then I would have 2 different lawyers look over the paperwork.
 
Wirelessly posted (sent from a smartphone. )

Ouch. Its too bad home prices are ridiclously high but then thats usually the destirable areas. I would love a good quality home thats not too old. No mobile homes. Life sure sucks. :-/
 
Bottesini said:
There are programs with sweat equity, where you do a certain amount of hours of work and then get to buy a house with lower payments and I think no down payment.

Habitat for Humanity?
Click to expand...

Great program, BTW. And very reputable.
 
Wirelessly posted (sent from a smartphone. )

jillio said:
Bottesini said:
There are programs with sweat equity, where you do a certain amount of hours of work and then get to buy a house with lower payments and I think no down payment.

Habitat for Humanity?
Click to expand...

Great program, BTW. And very reputable.
Click to expand...

Yeah? Whats the web site link about that program?
 
sequoias said:
Wirelessly posted (sent from a smartphone. )

Thanks for explaining how it works. Is it easier to get than a house that you pay down payment on your own?
Click to expand...
Nope, regular mortgages are way more common.
 
Read the fine print or have someone read and explain it to you.
There are all sorts of deals, but beware.
 
Wirelessly posted (sent from a smartphone. )

Ill research on habiat for humanity and get back to you all. It does look good but want to look into details.
 
Nope, regular mortgages are way more common.
Click to expand...

You do end up with a regular mortage at some point on a rent-to-buy program. For instance, in the example I gave, a potential buyer would be paying an extra $500 a month. In two years that that would $12,000, which could be used as a down-payment. Let's say the house is $120,000. So the person then goes to the bank, says "I've got a 10% down payment, what are your mortgage terms" and proceeds from there. (For simplicity, I'm not counting closing costs.)

Once the buyer has a mortgage, the sale goes ahead like any other sale.

You might be thinking of a land contract, which is something like a private mortgage between the seller and the buyer. That's a different thing entirely, where the seller holds the mortgage on the property rather than a bank. It might be used where aging parents want their adult children to buy, rather than wait for the parents' death to inherit, the property, for instance, giving the parents an income and the children get to buy the home, perhaps at less than market rates.
 
There are pros and cons with rent to own.

The advantage is that if you decided to rent to own, there is agreement in it that you could rent for specific time like 5 years. Then you can decide if you want to buy it, you already build some down payment, perhaps 5% of your rent goes to down payment. At 5th year you may have few thousands dollars for down payment.

Whats pros in it is that you can decide if you want that house or not after rent term is up.

The cons are if you decided not to own this house, you can kiss all your money goodbye.

Usually rent to own would cost more than just regular rental.

Scam? Really depends on the agreement. Best get your own attorney as your defense.
 
Wirelessly posted (sent from a smartphone. )

Rent to own is kinda like a scam because why am I paying to a landlord for what I saved up for a home. Thry wont return what I saved up to other home somewhere else. To me its more of an inconvience.
 
It can be ok in the right circumstances. My BIL sold his mom's house (after she passed on) to a young couple in that way. They knew for sure they wanted to stay in the area, loved the house, had stable jobs, just didn't have enough money saved up at the moment. I think the deal was that they would rent for 2 years (maybe 3?) and then buy.

This was when home prices were otherwise going up a lot, year to year, so they wanted to lock in the price instead of waiting 3 years to pay a higher price.

My BIL didn't need all the money from the sale of the house immediately, so he was ok with getting the income as a landlord for a few years.

It worked out all right all around. But those situations are somewhat rare, I'd guess, where both parties have a good reason for doing it that way.
 
It is not really scam, it is how housing markets are.

It is very similiar to when one wants to buy house without renting it first. Know what prospect homeowner has to put in front when buying house?

It is called Ernest meny which means a down payment when signing a offer agreement. It can be anywhere from 0 to thousands of dollars. And if they decided to drop the offer, they stand to lose the ernest meny money. So no difference really.

Rent to own is excellent for those with poor credit. Or those have doubt whether to buy house or not.

Buying a house outright for just few years is not worth money, because we have to pay closing cost, again it is no different than rent to own. The only real advantage to this is that when rent to own, the agreement can be cancelled after the lease agreeement is up, that is if you decided not to live there anymore or have to relocate due to employment.


It is not scam, just pretty much risk you need to decide whether to take it or not. Taking risk has its rewards.

Also, I wanted to add to the fact that some areas their house value has plummet. When you happen to rent to own in that area. The actual owner of the house stand losing alot money not you. That is where rent to own can be positive benefit.

sequoias said:
Wirelessly posted (sent from a smartphone. )

Rent to own is kinda like a scam because why am I paying to a landlord for what I saved up for a home. Thry wont return what I saved up to other home somewhere else. To me its more of an inconvience.
Click to expand...
 
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