Renting to own

Does anyone do this?  I am wondering if someone is doing this and why?

What do you think the reasons would be that people wouldn't get a mortgage and buy from the bank?  Instead of renting to own?

I had considered renting to own, because I'm not able to get a traditional mortgage at this time.  A rent to own company is more flexible.  So you're renting a place with the option to buy it at the end of the specified period... the owner or rent to own company holds the mortgage while you rent it, and a portion of your rent is going to become your down payment at the end of that period.

 

Caution, rent to own can be a problem.  First your rent payment will probably be higher than a 30 year fixed rate mortgage.  If not it should be so that you can prove to the bank that you can afford the mortgage payment once you accumulate the down payment or that portion above the rent payment.  Next, carefully read who is responsible for maintenance or what portion of it.  Next, arrange for you rent+equity payment to be paid to an esscrow company who will inturn make he basic rent payment to the property owner.  A property owner is NOT going to essentially give you a reduce rate so that an portion can be applied toward purchase.  The property owner has to get fair rent for the property or they may not be able to make the mortgage payment.  The property owner wants to make a profit and this is the money above his cost of ownership.  Be careful what you agree to as to who gets any money that is suppose to be applied as a down payment.  Prior to entering into ANY rent to own lease agreement seek the advice of a realestate attorney.

In Addition to the above, people are unable to get mortgages for numerous reasons. They may have poor credit or a record of late payment. They may have an excess of debt in relation to their income at the current time. Their debt to income ratio may be way too high. Their application for loan may show employment instability or short time on the job. Their credit card debt to credit limit ratio may be too high, or the may have no credit history, and the list goes on.  Rather than rent to own.  Rent and put the monthly down payment portion in a secure interest bearing investment that you are not locked into and can't withdraw your money on short notice without severe penalty.  Why put it somewhere it won't accure interest, like the property owner's pocket?

Caution again, a lease to own is a nice name for a lease option to purchase. In principle it's similar to a stock option. Essentially, you are paying the owner money for the option to purchase the property at a certain price, once certain conditions have been met. In the event you decide not to exercise your option you forfeit any monies paid. It's a very important the terms of your option be clearly defined.

Think about it in reverse for a moment - the people who are renting you this house on a rent-to-buy plan have a traditional mortgage over the purchase price of the house. They add on an administration fee to the price, then they put a profit amount on the price so that it's worth their investment time and money - and THAT'S how much they set your purchase price at. So point number one is that you're paying more than the house is actually worth to begin.

Second point is that the owner still has a traditional mortgage over the property. They then charge you that amount of money PLUS a profit amount of money to provide them with cashflow whle you're still renting it. So you're paying way too much rent. This is called a "wrap".

Third point is the owners KNOW you can't go out and get a traditional mortgage for a reason - either you don't have clear financials to show the bank or you've got bad credit - and they are aware that people in these situations probably won't be in a position to buy-back later - meaning even more overpriced rent.

Easy option? If you think you can afford a "Rent-toBuy", work out what your repayments would be. Figure out how much you pay in rent right now. Then work out the difference in the two amounts. It's usually around $100-$150 a week. If you really can afford to do this, then BANK that amount of money for a year. If you find it hard or miss weeks - then you shouldn't be renting-to-buy.

If you find it easy - then you suddenly have a deposit for your own tradional mortgage....

Hi All,  Debbie, do you  mean lising by saying this :
 ''So you're renting a place with the option to buy it at the end of the specified period...''  ?


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