Profile picture for lgangemi

how does rent to own typically work

  • October 21 2011 - Bethlehem Township
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Answers (13)

Profile picture for KWhiteRoss
Hey Ive read a few of your comments and would really like to speak with you on this process I have a few questions im new to the renting to own process im 23 and the house I have is 74,000 and I payed 7,000 upfront with a fee of 650 a month now the catch comes where I was looking up more research on my house and found that the rent was550 a month and the down payment was 350 im now working on trying to change the house over into.my name so I can sell and exspand only problem is dont kno where to go from here please if u can hellllp thank u
  • June 10
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Profile picture for gator70
There are two components: Purchase option, and lease. With any purchase option, the buyer is on the clock and must perform by the option date or loose the option money deposited. 

If a buyer does not become worthy of a loan, and qualify at a latter date this contract is bad. On the other hand the buyer has the power in their hands to correct credit issues within say 2 years time and qualify for a mortgage.

Like anything in life, is the buyer discipline enough to take the required steps within say 24 months to cure the credit issues?

Buyer advantages include: Freeze the purchase price in a rising market. 

Perfect target buyer: Income not currently in a form that a loan underwriter will accept, however after two tax years will satisfy the underwriters requirements. 
  • February 02
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Profile picture for sunnyview
"When done properly Rent to Own is by far the best thing happening for the 82% of people that cannot qualify today."

That is the biggest load I have read in a while. Perhaps you feel people should thank you for adding a fresh pile to the internet compost heap...but I won't.

Rent to own often means that the buyer with damaged credit never sees their earnest money/additional rent payments again. It also means that they often buy the house for more than the open market is willing to pay and more than the house will ultimately be able to appraise for.

Anyone who fails to explain the dangers to potential rent to own buyers is selling something. Oh wait, that would be you.
  • February 02
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When done properly Rent to Own is by far the best thing happening for the 82% of people that cannot qualify today.  [Promotion and website removed by Zillow moderator. Please see our Good Neighbor Policy.]
  • February 02
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Profile picture for secchron

This really sounds like a bad deal for the buyer

  • November 23 2013
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Profile picture for sunnyview
Rent to own often does not work for anyone. There are a lot of pitfalls and a lot of deal fall apart after the buyer has put money in. Generally the house must appraise for a value high enough to cover the agreed upon sale price after a set length of time. Sometimes that does not happen and the buyer loses their deposit or if the contract is written badly is forced to walk away.

Other times sellers do not keep up on maintenance during the tenancy period or they fail to pay the taxes/insurance/mortgage. In that case the buyer also often loses their additional monies. Before you decide to do a rent to own, have a real attorney draw up an airtight contract and ask that any monies over the amount of rent are paid directly into an escrow account and not help by the owner.
  • February 14 2012
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A portion of the rent goes towards the purchasing price, you can negotiate the terms how you like, use an attorney before signing an agreement
  • February 14 2012
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In my market it consists of a buyer / tenant paying rent and a monthly escrow payment. A settlement date is negotiated and the tenant buyers escrow payments goes to the buyer for deposit money at settlement or goes to the seller if the buyer does not choose to buy the property or can not buy the property.
  • January 29 2012
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Profile picture for BobDandi
Also consider a recorded purchase option instead of a rent to own situation. This allows you to set a price for a time certain into the future where you can exercise your option price once you have everything in line to buy.
  • November 20 2011
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These can be tricky.  Be very careful.  It's very easy to lose on the seller OR the buyer side.  Have a good attorney, and if possible, an experienced realtor working for you.
  • November 11 2011
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Rent to buy is going to be a customized negotiation between you and the seller...  You may be better served by one of two options -- 1) seller financing where you take ownership of the home and the seller can take it back if you default or, 2) rent with an option to buy.  The second choice gives you a predetermined price and terms that you can walk away from later if they do not work for you in the future.  Both of these options require legal advice and a negotiation with your seller/landlord.  Get an agent and attorney involved if you are seriously considering more than just renting.
Sophia V. BIlinsky, Realtor
Prudential Fox & Roach, Realtors
Longwood Office
  • November 09 2011
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Profile picture for wetdawgs
The steps:

Find a house where an owner is willing to consider the option.

Agree on price that will be used for the purchase in 1 to 3 years (even if housing prices have dropped in the interim).

Put down a hefty, non-refundable deposit.  This is often 5 to 20% of the agreed upon purchase price.

Every month pay rent plus a non-refundable amount towards the purchase price.  The fair market rent is not going towards purchase.

In one to three years, try to finance - discover the house is now worth 10% less than you agreed upon so you either have to come up with the difference or give up all your non-refundable deposits.

  • October 21 2011
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Profile picture for sunnyview
The seller offers the house for sale. A price is agreed upon and the buyer puts down a deposit. Often the buyer pays a set amount every month toward rent and a set amount every month toward the purchase price or the down payment. The buyer typically is required to find permanent financing on the house after a set time like 1-3 years with a bank.

Some people have said that rent to own is where "unrealistic sellers meet unqualified buyers". That can be true often the agreed purchase price is more than the house eventually appraises for and so the deal falls apart. Or the buyer is unable to obtain financing due to ongoing credit problems so the deal falls apart.

The other side of that is when you have a seller that feels they still own the house so they treat the buyers like unwanted tenants or a seller that is unable to pay the taxes so the property incurs liens that must be paid by someone before the sale takes place.
  • October 21 2011
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