Rent to Own Houses
If a ”Rent to Own” is structured correctly, you are buying the house from the landlord (not renting it) and instead of going to a bank for a mortgage, the landlord is acting as the bank. A purchase price will be agreed on upfront. You will have a limited period of time, usually 2 or 3 years, to qualify for a mortgage and payoff the loan the landlord made you. At that point, title transfers into your name. The payment you make on a “Rent to Own” should not be the standard rental rate, but rather an amount that represents a payment to the landlord on the loan he made you - including property tax and insurance. The landlord will decide the terms of the loan including the interest rate and amortization period - even though you will only have 2 to 3 years to pay off your loan it will usually be set up as a 30 year loan to keep it affordable. Whatever the remaining balance is at the time you qualify for a mortgage is the amount you will get the new mortgage for.
Some things to watch out for on “Rent to Own” offers:
*vague terms or no set purchase price upfront
*landlords who offer to credit all or part of your rent against a purchase price - lenders won’t accept this and you won’t be able to refinance the balance. Most of your payment will be going to pay interest on the loan the landlord made you just like a regular mortgage
*make sure you can document all payments made, including the down payment. You should be able to provide proof of the source of the funds
*just because you are paying the landlord, doesnt necessarily mean that he’s paying his mortgage. Make sure you have the right to confirm that the landlord’s mortgage and taxes and insurance are being kept current or you could lose every penny you put into a rent to own house.
