rent to own...how does it work

[robinsonbn]

How does renting to own a house work? Does it have to be listed as so? Anyone BTDT?

[kijip]

It is often part of a scam. You make some sort of down payment and then pay rent for a period of time, after which you have to option to buy (the idea being that you will be able to get financing later.) If you are late with the rent, you can be evicted and you forfeit the cash you gave up front as a down payment. Since the monthly payments are generally higher than the "buyer" can afford, it is common to be late.

http://www.atlantalegalaid.org/homebuy.htm

There are better ways to try and buy a house, even if you don't have a lot of money. Try contacting the county where you live and seeing what they have in terms of buyer's assistance programs etc. They should also be able to tell you of other programs in the community. See if land trust purchases are available in your area (where you buy the house and lease the land for all but nothing from a non-profit corp. Since the non-profit grants the money to buy the land, you can get a much smaller mortgage. It can take awhile, but it is a better deal than getting ripped off in a rent to own situation.

[Bethann31]

Be sure to talk to Real Estate Agents in your town though. While I agree with Katie that it CAN be a scam, as a RE Agent, I have seent lease purchases more often offered by sellers who are having a difficult time selling their property, and are willing to take a chance on renters actually purchasing it in the future. The "option" to buy is often not a huge amount, and it gives the lessee the chance to work on their credit, etc.

My overall advice to anyone, is don't do anything without a licensed Real Estate agent representing you. Now, it might not be as easy to find someone, since the agent will not get paid until the house is closed (purchased), but a good one will be willing to wait to develop a relationship with you. That Real Estate Agent will be able to negotiate with/for you, so that many of the problems mentioned in that article can be avoided. And, it won't cost you anything.

Beth
mom to:

Josh 3/90
Mollie 4/92
Jeffrey 12/94
Katherine 6/03

[Mommy Of A Little Angel]

I agree with PP. So little of the money you actually pay in rent goes towards the "buying" part. You also usually have to put a lot more money down than if you were renting. You typically won't see that money again. I would go ahead and see what you can afford as far as buying a house outright. You may be surprised. Also, many states have programs for first time home buyers that you may qualify for. Even if you don't, you probably can afford a house.

Trust me, I FINALLY got over my (irrational) fears of home buying and am in the process right now. Contact a mortgage company (ask around for recommendations) and see what they can approve you for. Also, meet with a realtor so you can see what options are out there in your price range. Mortgages with little to no money down are becoming quite popular.

Good luck and let us know how it all turns our.

[DrSally]

I wouldn't do it, so much money goes toward interest that you may never own. I actually interviewed for a job right out of college at a social service center counselling people about the hazards of rent to own. Daytons (Marshall Fields now Macy's) had a program where they extended credit to people instead of getting into the trap of "rent to own".

ETA: this was for furniture, electronics, etc, but I imagine similar principals apply to home buying situations.

[kbudsberg]

I can't speak specifically but I think it depends on what they mean by rent to own. We just moved to Orlando where housing prices jumped a whole, whole, bunch in just a very short amount of time. Well, now no one can sell there house so many people are offering rent to own. They are all different but some around here are giving you a credit at the end of the lease to apply towards the purchase if you are interested. One place we looked at said at the end of the lease they would apply 25% of what we paid in rent towards the purchase price of any house he had on the market at that time. Others though charge more rent for the rent to own option and make you put something down. That's very different and doesn't seem to make sense to me.

Be careful, just because a mortgage company will approve you for an amount doesn't mean you can afford it. I also think no money down is not a very smart idea. If you need to sell w/in a few years using a realtor chances are you will owe $ out of pocket to the realtor since you probably will not be able to acquire that much equity in a short amount of time. Also remember you really should have an emergency fund on hand when you own a home. A/Cs go out, roofs leak, and financial problems (job loss, medical problems, etc) do happen and w/out the emergency fund you eventually face loosing your house.

Kim

[Bethann31]

You know, I've thought quite a bit about this and I wonder if part of it isn't semantics. I think of Rent to Own as rather a bad thing as well, while the term Lease with an option to Purchase is sometimes an optimal choice. Yes, it's better to buy outright if you can, but a Lease with an Option to purchase is often advantageous to both parties. Sometimes a seller cannot sell a property outright or isn't sure, so they offer someone the right to exercise an option to buy at the end of a lease. The renter does not necessarily lose his option money, that is all negotiable. OR, if you are moving to a new area, you might not want to purchase a house right away, but you find a house you love in an area you are uncertain about. Rather than just rent an apt. A Lease with an Option might be perfect for you. Remember, use an agent and everything is negotiable.


Beth
mom to:

Josh 3/90
Mollie 4/92
Jeffrey 12/94
Katherine 6/03