Profile picture for JenapherBlair

Is it possible/ even a good idea, to look into Rent to Own homes with having bad credit?

And what is the normal "down payment" - monthly rent cost for a 3 Bedroom 2.5 bath?
  • April 03 2012 - Eden Prairie
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Answers (8)

1) Lease/options AKA rent-to-own should only have 3% down EVER. Who on earth would pay 10% down for a lease/option yuck.

2) Typically Wetdawg is correct sellers will ATTEMPT to charge market rent, and then inflate it and use that spread to go towards your DP/purchase price or whatever. This is also a bad idea in my mind and I would never advise it. Don't ever pay more than market rent, and have at least 50% of that payment (or better yet all of it) go towards your purchase price.

3) Financing financing the key is to HAVE A PLAN! You should always speak with a loan officer before ever deciding on going the non-traditional route. Many snub their noses at it and don't like working with you because it will be years away before you use them, but that is maybe a reason to either:

*** Ask fore referrals on....ZILLOW!
*** Ask a Realtor for a refferal to help you out. I don't get anything special working with loan officers. I simply only work with the best ones for my clients.

Bottom Line you need to know, and also pick a price point, where you know 100% you can get financed within the time frame and then ask for another year just to be on the safe side. Since I normally am giving advice to those who have gone through a foreclosure I say 4 years since most have to wait 3 anyways. I am not however a loan officer and don't pretend to be one so speak with the professional. 

4) Prices are the next obstacle. Whether you do a land contract (C4D) or a lease/option the risk is no different than buying a traditional home. When you get into this the mindset has to be no different than if you were buying with a traditional 30-year mortgage. 

Eden Prairie is a very stable market right now. I am not however an expert on the south Metro I believe Donald or even Mike Emery wherever he is on here are better experts down there. 

There are things you can do to minimize risk at all possible but at the end of the day no one can promise, including me, that home values will not decrease. This is a decision you have to make.

Lease/options and C4D's are for people who do not want to Rent period. Traditional financing has a lot more protections for buyers and is always optimal. On the one hand you can't get burned renting, but on the other hand home ownership for most I believe is a lifestyle decision. There are no right or wrong answers in my mind when determining the best route it is a personal decision for you to decide.

5) You can lose the same way on a C4D wetdawg. I just spoke with someone 2 weeks ago that wanted me to help them because they had one where the seller stopped paying the mortgage.

Certainly the easiest away to avoid this is only working with sellers Free-and-Clear. Work with an attorney and title company where your payments goes to a 3rd party FIRST AND ALWAYS no matter if there is a mortgage or not. Do not allow the seller to take on extra mortgages, etc.. Same situation I am not an attorney, but no matter what you want one to help review the contract and put in extra clauses to protect you, along side working with a title company.

Personally to me a seller that does not have the property free & clear is a deal breaker, but there are always exceptions.


I think the overall message for you is that TERMS are usually just as important, if not more, than just PRICE alone in these transactions. I personally know investors that specialize in lease/options and do very well....because they negotiate exceptional terms.

If you can afford a larger down payment C4D can usually be the more prudent deal, however you take on more risk if the seller defaults (if they have a mortgage).

I personally like lease/options because of the different pool of sellers. You can go on Craigslist and search the rental section, check out Expired Listings (would need help from a Realtor), or there are companies out there that specialize in this. You usually will interact with sellers who had a very difficult time selling their home which is why they will consider a lease/option. They are motivated and you can get favorable terms.

I tend to believe that if you have enough cash for a 10-20% DP on a C4D you hold a lot more leverage than you might think. Cash is king, and to me not worth risking unless it is a ultra safe contract. Much better to rent and re-build your credit in my mind and wait until you can shop traditional. 

But hey that is Real Estate everyone has an opinion, and hopefully with all these great answers you have learned a couple things. Good Luck!
  • April 05 2012
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Rent to own: Where delusional sellers meet unqualified buyers, no home gets sold and some attorneys make a lot of money!
  • April 04 2012
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Hi Jenapher,

C4D is listed on the MLS listing under financial.  This is a part of the listing that only Realtors see.  If I have a C4D buyer who can work the program correctly I reach out to sellers / agents and explain the benefits of the program to sellers.  There are always a few in this market willing to talk to us.
  • April 04 2012
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Profile picture for wetdawgs
@ Jenapher:  Mr Blair's interesting description of C4D included the phrase "at least 10% down".  Have you saved up that amount yet? 

Sounds like you have great impetus to solve the credit issues and build up your down payment very quickly.

  • April 04 2012
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Profile picture for JenapherBlair
Thank you all very much for the replies! You have been VERY helpful.

Now Mr. James, how would I go about looking for a C4D home? Do I look for homes for sale withe a C4D option or homes for rent? Will the listing say anything about a C4D option or will I more than likely have to ask upon interest of the house? My husband and I dont have the best credit, and we are definitely saving for a down payment on a house, but we don't know the best way to build credit AND pay off debits. We have a 3 (almost 4) year old and we really want that "home" to start building memories in, instead of moving from apartment to apartment every year.

Thank you for any and all advice!
  • April 04 2012
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Hi Jenapher,

As wetdawgs says below Rent to Own is great for the landlord / seller and not so great for you.  If you are ready to own, and want to build your credit, look at the possibility of Contract for Deed (C4D).  C4D is more equitable to both sides.  You control payments, property tax, insurance.  If the seller reports to the credit agencies this is a great way to build your credit.  We have a few homes listed where the seller will consider C4D, usually with at least 10% down and will report to the credit bureaus.  The plan is often a three-year C4D, get your credit up, then change over to traditional finance.  In the TC metro area it is about 25% cheaper to own rather than rent so you are thinking in the right direction.
  • April 04 2012
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Profile picture for Joseph F Moore
Wetdawgs is 100% correct.  I don't know if it's possible to answer that question better.  Consider a contract for deed if you have the cash.  You might have to wait it out until your credit improves.

Talk to a mortgage banker to determine all your options.

Best of luck!
  • April 03 2012
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Profile picture for wetdawgs
Owners who will consider rent to own are very rare, so it will cut down your options considerably.   I consider it much smarter to spend a year or two working on improving your credit and (if necessary) saving up a good down payment.

Some features of rent to own:

1.  Down payment required - often substantial (say 10%) and is non-refundable if the potential buyer doesn't purchase.

2.  Monthly rental is above fair market rent, with the only amount going to purchase is the amount above the fair market rent.  This is also not refundable.

3.  If not qualified for financing at the agreed upon  time and price, then you lose everything. 

4.  The price is agreed upon at the beginning of the contract, and housing prices may still be decreasing.

5.  You still depend on the owner to pay their mortgage.   If they fail, you lose.

Rent to own is most often a losing proposition for the buyer.  
  • April 03 2012
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