Profile picture for leah burke 91

Is it better to rent to own or have a mortgage?

We are first time house lookers and not sure the best way to go about it. We don't have good credit, but we have not talked to a bank about what our options are. What should we do and how do we make sure we are not paying too much? Should we try working with an agent or is that just an unneeded expense?

  • November 23 2013 - Lakeland
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Answers (7)

You need to start with a mortage pro who knows how to qualify you, and then proceed from there. I do suggest buying as we are still at a low point in the market. Just like on Wall Street, buy low and sell high. Rates are low as well, and even though you pay more with taxes and insurance each month you get the mortgage interest deduction at the end of the year, and you will probably end up paying around the same if not less to own as you currenlty rent for (of course depending on price of home you buy).
  • January 01
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I suggest that first of all, you should talk with at least to mortgage brokers and see what they recommend.  If you are able to buy then contact a buyer agent, but not before.  You do not want to waste your time or the agents.  Good luck!
  • November 23 2013
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Profile picture for TeamBorden
I would speak to an agent that you trust and if you don't have anyone, interview a few until you find one that seems legitimate.  Ask for references!  Make sure they are not just a part time agent because many first time buyer's are in a very competitive price point and if you can't see a freshly listed, great property in the first couple days, you won't have a good shot at it.  

Every realtor/broker is different.  With this said, some agent's charge an up front retainer fee for their initial work, beware.  The way commissions work is as follows.  The seller creates a listing contract with the seller's broker where they agree to a specific commission, for this example we will use 6%.  The listing agent/broker then will pay out a buyer-broker compensation (your agent/broker) of anywhere from 2.5-3% (give or take).  The only responsibility that you will generally have is a broker administration fee that is paid at closing.  This fee can range from $250 - $500 depending on the broker.  Make sure that when you are interviewing agent's, they disclose this before signing anything.

You see, hiring an agent to represent your interests does not cost that much for what you are getting.  A good agent will be able to recommend a great lending partner they have good experience with.  Also, they have connections with home inspectors and title companies that make the process smooth and who will watch out for your back.  Loyalty, confidentiality, disclosure, obedience, reasonable care, and accounting are the fiduciary responsibilities you get when you sign a contract with a broker/agent.

I would not go at this battle alone.   Good luck!

  • November 23 2013
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Dear Leah,
Go to the bank and speak to a loan officer there. Find out what you can comfortable afford and get your Pre-Approval taken care of.  Once you have this information, it will be much easier to gather your thoughts and make decisions.
Choose the areas you are interested in and then contact a local Realtor To help you pinpoint a property. You do need an experienced "Buyers Agent" to guide you through the transaction.
  • November 23 2013
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Hi Leah,

Whether you talk to an agent first or a lender, your first step will be to get preapproved.  A good agent will be able to refer you to a good lender for this.  There should be no expenses either way.  Mortgage and Real Estate professionals usually do not charge a fee for their services.  They get paid when you reach your goal of buying a home.  So their motivation is to help you reach that goal.  Good luck!
  • November 23 2013
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Profile picture for wetdawgs
You are doing the right thing planning and getting ready rather than turning house buying into "gotta do it now".  

Here are a couple of resources that will  help you walk through the buying process:

Zillow's buyer's roadmap

Hud home buying section.

Very few sellers will consider "rent to own", so your choice of homes will be extremely limited (if any).   You will need a substantial down payment (perhaps 10% to 30%) and the only monthly amount going to purchase will be the amount you pay higher than market rent.  If you can't get funding for the amount you agreed and the time you agreed, you lose all the money put in.    This is highly risky.

Instead, identify your real credit scores,and  your action plan for improving them.  Work the action plan.   At the same time save up a substantial down payment, closing costs and reserves.   

You can do a rough calculation of what you can afford by using the affordability calculator.  Talk to a good lender to get an evaluation of where you stand today in the process.    A good buyer's agent can be very helpful, and it is far better to have your own representation in the buying process than force a listing agent into dual agency (representing both buyer and seller).  While you can look at open homes, getting a pre-approval from a lender is critical before a buyer's agent will want to be showing you homes. 

  • November 23 2013
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It is better to have a mortgage. If you don't have good credit, then you will overpay - by a lot - for the "privilege" to get stuck in a rent-to-own situation. You certainly should work with an agent, because they know more than you do and can be a wildly valuable resource.

Here's the thing about rent-to-owns, Leah. Ever go to one of those furniture rental stores? They have nice enough looking stuff, not much of a selection, and it's expensive. They make their money on the credit side of things; that $2500 sofa will cost you $300 a month for a year rent-to-own, you've paid $1100 for "easy payment terms." And, you could have bought a sofa just as nice at Macy's for $2000.

Well, that's how it works with houses, too. If your credit is bad and you have to limit your search to rent-to-own homes, there's not much of a selection, and you pay more than its worth. Typically, there's also an upfront non-refundable deposit of about 10%. And there's one glaring problem: if you can't afford to buy at the end of the option period, then you've lost all of the extra money you've paid, including the deposit.

With that in mind, Leah, I suggest rebuilding your credit, and THEN go out and have your pick from all of the houses on the market!

All the best,
  • November 23 2013
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