Rent-to-own?

[Handbag Lady]

Has anyone else besides me heard of rent-to-own homes?

A friend did this a few years ago and it worked out great. She didn't have a down-payment (at all) so she lucked out and found someone who wanted to move and couldn't find a buyer.

So, they did a rent-to-own. Basically, she paid rent and half the rent went towards buying the house. They had a 25-year deal set up and she was able to switch from paying rent to paying the mortgage after 10 years. She immediately took over home repair responsibility the day she started paying rent.

I've mentioned this a few times to other friends, and they all say they've heard of such things, but no one knows where to find a rent-to-own house.

I've looked on Google and all they seem to have are scammers, or people who want you to sign up and pay for other services to see listings.

Is it something that we would need to find a realtor to do? Or did my friend just get really, really lucky?

 

[Nicholfamily5]

in a nutshell?


Really REALLY lucky. Especially in this economy, people need to just get out of the mortgages, and true rent to owns are nearly impossible to find.

Also, I would be really worried that the homeowner would just spend the other half, and when I was ready to "buy" the money I thought was there just wasn't. Maybe I'm just cynical.

 

[phillmolly]

I don't know excatlly how it would work but I would love to do something like this with my current home! We want to buy a new house next summer and we know that we will not be able to sell the home we are in now, so we are planning on renting it out, but if I could find someone who needs to rent for a few years before than can buy I would do it in a minute!

 

[Blue.Fairy2]

there is a company here that does this, maybe it is a southern thing but there are quiet a few rent to own deals here in Tennessee.

I walk by one everyday tomorrow I will write down the name for you and post a link.


this is not it but maybe this will help:

http://www.irenttoown.com/register-now/

 

[GOOFY4DONALD]

We did something like this when we bought our first home. We didn't have any money for a down payment either. Basically, like pp said, you have to be pretty lucky. Most of them are not really called rent to own they are usually worded contract for deed. The seller wanted a 5K down payment which we didn't have. So we paid extra amount on each payment until the 5K was paid up. Now you have to enter a legally binding agreement. If the seller tried to run off with your 50% towrds the mortgage you can take them to court. Most of them are advertised in the paper. Most people who buy them are people that won't qualify for a traditional loan but not necessarily bad people.

 

[MrsPete]

These deals are few and far between because in this situation the seller doesn't get his equity out of the house at one time; thus, he cannot use the profits from House #1 to buy House #2. Obviously, most sellers aren't willing -- or able -- to enter into such a deal.

Typically a seller will do this if the house is difficult to sell for some reason (i.e, needs work, is in a bad location); after all, most people who CAN sell their house straight-out will do so. Also, the buyer usually pays a relatively inflated price for the property because he's getting such a deal on the financing.

Also, I would be really worried that the homeowner would just spend the other half, and when I was ready to "buy" the money I thought was there just wasn't. Maybe I'm just cynical.

It would be very foolish to enter into a situation in which the homeowner could change the terms mid-way through. It shouldn't be just a word-of-mouth agreement.

 

[Handbag Lady]

I don't know excatlly how it would work but I would love to do something like this with my current home! We want to buy a new house next summer and we know that we will not be able to sell the home we are in now, so we are planning on renting it out, but if I could find someone who needs to rent for a few years before than can buy I would do it in a minute!

Well, where are you???

 

[Handbag Lady]

We did something like this when we bought our first home. We didn't have any money for a down payment either. Basically, like pp said, you have to be pretty lucky. Most of them are not really called rent to own they are usually worded contract for deed. The seller wanted a 5K down payment which we didn't have. So we paid extra amount on each payment until the 5K was paid up. Now you have to enter a legally binding agreement. If the seller tried to run off with your 50% towrds the mortgage you can take them to court. Most of them are advertised in the paper. Most people who buy them are people that won't qualify for a traditional loan but not necessarily bad people.

Our problem is that we have great credit, but not the 20% down. We have about 10% down. Keep in mind, houses where we are run about $600,000 for just a basic place somewhat within an hour's drive of our work. We would qualify for a traditional loan, but in Michigan or Tennessee or Nevada. Certainly not Los Angeles!

 

[Handbag Lady]

See, it would HAVE to be a legal contract, drawn up by lawyers and such.

We were hoping to find a family who were retiring to a Summer home who already have a low mortgage or none at all, or perhaps someone who can't pay their mortgage any longer and didn't want a foreclosure on their credit scores. We could take over payments and then pay a small amount extra per month in "rent" instead of a 20% downpayment.

Or, I was hoping to find a situation that happened to another friend of mine. He married later in life and both he and his new wife owned their own homes. He couldn't sell his house for top market value, so he rented his home out in a rent-to-own, but he did it to his nephew and not me!

I'm thinking we should find a realtor who might know of clients who are having a hard time selling a home. There are a lot of homes on the market here and some are just not selling.

 

[dawson5]

is this land contract? we had friends that did this years ago and actually got burned, went to court, court sided in their favor and they still live in the house to this day. If it were me, I would have a real estate lawyer go over it with a fine tooth comb, just to cover you.

 

[PA Princess]

I personally know of two situations in this area that people did something similar to what the OP described but it was not rent to own, more that the owner self mortgaged the home.

In both cases the owner owned the home free and clear (one was inherited and one was just paid off) and the houses sat without selling for a long time. Legal contracts were drawn in both cases and all mortgage payments were made to the orginal owner. The buyer owned the home just as any of us with a mortgage owns our home.

Advantage to the buyer is this works for those who may not qualify for a traditional mortgage. The advantage to the seller is a sold property plus the potential to make more money by receiving interest and principal.

Just another way OP for you to approach this topic to perhaps open the field for what you are looking for. I would contact some real estate agents and see what help they can provide in connecting you with a buyer who may be interested in this type of arrangement.

Also, I know when we did our mortgage for the home we bought in June, the banks did offer us mortgage options that included less than 20% down. I know with the amount of home price you are looking at this may be different, but I would still talk to a mortage broker and be sure to rule out any and all possibilities of a traditional mortgage...especially if you have excellent credit.

 

[Blue.Fairy2]

I know this is not in your area but their website might have some info for you.

This is the company I was referring to in my previous post.

http://buychatt.com/

 

[budafam]

I agree with there not being many options for doing this... you definately won't get to pick whatever house you want. My MIL is doing this with their house and it is nothing but an insane headache for her. Once entering contract for something like this, she was stuck. The renters have quit paying her full rent every month and are now behind over $2,000. They also don't pay utility bills so my MIL has to cover those as well. She wants to kick them out but now has to go through a lawyer to do anything since they're in a contract... it's just ridiculous and I feel so bad for her!!! With both of our houses we didn't have 20% down. Our first house, we paid $5 at closing. The second house we had 10% down and we got that back in November right when everything started taking a dive. This probably isn't much help but honestly, people who are willing to do this are probably really desperate to sell these houses and I would be leary of buying them for that reason alone.

 

[allyphoe]

I think what you're describing is what's usually called a "lease purchase." Contract for deed / land contract is more like an owner-carried mortgage where the seller holds the title, rather than a lien against the title.

You do need an attorney (either have your attorney write it, or have your own attorney review it), and it's not uncommon to request that the portion of your payment that goes towards equity be escrowed.

 

[JeannieNM]

I would look at homes you are interested in with a realtor. Then have the realtor inquire if the owner will consider rent to lease or holding the mortgage.

I am selling a house that I bought for my mom about 5+ years ago. She has since passed away. I am not advertising that I would hold the mortgage or rent to sell but I would consider it. I do not have a mortgage because I bought it outright so if someone had good credit but not the down payment I would consider it. Too bad it is not in LA.

In todays market, it does not hurt to ask.

 

[FLBound11]

I know what you mean by "Rent to Own." A bunch of the big home builders around our area offer that. A few apartment buildings do too.

What I've found is that they tend to be over-priced a bit compared to similar "normal" apartments/townhouses/houses for rent in the area. They usually do "rent to own" if they are having trouble selling all of the homes in a given development.

And I would be cautious about buying a home that the company was having trouble selling...b/c that means that there is either not enough demand, or they are over-priced and aren't willing to lower the price.

I think that if you're ready (financially + emotionally) to buy, then it's okay to buy. But if you're not ready to buy, don't do it. Rent for a little while and save up the money for a decent down payment.

 

[kathie859]

Our problem is that we have great credit, but not the 20% down. We have about 10% down. Keep in mind, houses where we are run about $600,000 for just a basic place somewhat within an hour's drive of our work. We would qualify for a traditional loan, but in Michigan or Tennessee or Nevada. Certainly not Los Angeles!

Check out the loan limits for an FHA loan. The highest FHA mortgage amount in Los Angeles for a one family home is $729,750. The required down payment is 3.5% of the purchase price.