Rent-to-Own Home Offers Legitimate?
Many people dream about owning their own home but don’t feel they can afford it, for various reasons. It can be a considerable commitment to scrape together a down payment and all of the legal and closing costs involved in buying a property from a seller.
In addition, people might be deemed a credit risk for various reasons, which means it could be difficult to get an affordable mortgage, homeowner’s insurance, and so on. They might also have unpredictable income due to working for a commission, for example, making them seem a greater risk to the bank they have applied to for a mortgage.
One recent idea for extending home ownership to those who might not otherwise qualify is the "rent to own your home" offer. The principle behind it is that your monthly rental payments won’t just be rent, or "dead money" as some people call it, but a payment towards equity in the house - with a view to paying off the full price of the home and eventually owning it outright.
This can sound like a dream come true, but as with all things, it is a case of buyer beware.
A Typical Rent-to-Own Agreement
In a rent-to-own deal, the person or company that owns the home you are interested in agrees to sell it to you in the future for a specific price. The rent you pay every month is counted toward your future down payment on the house.
However, these deals can be risky, and even complete scams, for a number of reasons. There are several main issues to look out for:
- The "seller" doesn’t really own the property
Some people are renting the home themselves, and would only be subletting to you. Or they have keys and access to the property, but no right of ownership.
- The owner hasn’t paid property taxes
This can mean your payments get eaten up, giving you a lot less equity in the house and making it take much longer to pay it off.
- The owner is not allowed to sell it
There can be a number of reasons for this. They might not be paying taxes and have a lien on the property. It might also be in a designated flood zone and thus have restrictions on it being sold.
- The house is in terrible shape, or has issues like lead or asbestos
Rent to own is a real option that has helped thousands of families buy their first home. As with anything - there is the potential for scams - so buyers DO need to beware when dealing with ANY real estate transaction as all of them have the potential for fraud. Thanks for helping bring awareness to the issue. I plan to sell my home using "rent-to own" where I will carry the paper for some buyers. I want to do this so that I can receive a stream of income from the property instead of just selling it for cash. I will ask more than market price for it and people will be willing to pay if they can bypass the bank and get direct financing. The buyers will make a payment to me every month - this is why most investors offer this option.
You do need to be careful though -
Always be sure to do a title search to make sure you understand who the owner is and what liens might be on the property. Buy title insurance to protect yourself from fraudulent sellers.
Always do a home inspection to make sure you are not dealing with asbestos or foundation issues
Great write up - thanks for sharing!
oh, I love it! What I have been doing is a discount lease. they pay on or before the due date and they get a portion put towards a down payment. yes, but you can run title and then something happens. I agree with title and inspection too! thanks for the comment!
yes - I have seen that option also - it's the standard "rent-to own" model - I would be open to that to with the right down payment - but you are right about title - just because it is clean when you first start doesn't mean they cant put other liens on it still. Maybe an annual title search would be a good idea - there has to be a level of trust in a transaction like this because of all the unknowns - still a good option for many people if you can find a seller willing to do it.