Buyers of rent to own homes often end up paying rental amounts that are way above fair market.

This is because a seller will say something similar to this:

“Well the rent is $1,300 per month. $1,000 goes toward rent and $300 goes toward purchasing the house.”

This might sound like an ok setup at first, especially if you have trouble saving money for the long-term. But for the seller this is an amazing deal if you agree to it. Because they would be receiving the $1,000 month, which is probably close to what they would get just renting the house. Then they receive $300 extra each month and do not have to pay it back to you if you default on the agreement or decide not to purchase.

In an offer like this it is best to negotiate a payment as close to the $1,000 amount as possible and save the extra money in your bank each month instead.

Because if you don’t end up buying the house, the cash you have been putting away will still be yours!

Agreeing to buy for more then the home is worth

It’s extremely important that you and the seller agree on a purchase price that is close to fair market value. Imagine this scenario:

You find a rent to own home available for $200,000. You sign a rent to own agreement at the price of $200,000. 24 months go by and you are ready to close on the house. But it turns out the home was only worth $180,000 and that is the maximum amount a bank will lend. In this situation you would be short $20,000 to close on the home. Your option fee and any rent credits would help to reduce the purchase price but you would still be short on funds to close on the mortgage when you qualified.

In later videos we will offer advice on how to avoid this mistake. For now, just make sure you verify that the amount you are agreeing to purchase the home for is the current fair market value for the property.

Paying on a home in foreclosure or pre-foreclosure

Imagine being in this situation for a moment: You move in to a rent to own house, pay an option fee of 3%, and make payments for about 6 months.

Then, out of nowhere, you receive a letter in the mail stating the homeowner is over 7 months behind on the mortgage and the home is being foreclosed on!

This is a tough situation to work out. It would be best to bring these concerns up with the seller/Realtor BEFORE signing any paperwork. You could ask them to provide proof from the bank that the mortgage is current.

If the seller won’t provide you with these details you might have uncovered a red flag. Remember, you are taking a risk when entering into a rent to own purchase contract and the seller should understand this and be willing to prove their home is not in default.

Not determining who’s responsible for repairs

This is negotiated upfront BEFORE you move into the rent to own home. In most cases, the tenant is responsible for repairs to the home during the lease period.
But, these are details that you NEED to work out upfront, so make sure you discuss this early on in your conversations before you commit to the agreements. Also be sure to include them in your lease and option agreements.

Avoid a house needing several repairs that the owner wants you to fix. Don’t forget, if you end up not purchasing the house, all of the money you spent on any upgrades to the house will be forfeited to the owner.

Letting the option period expire before you qualify for a mortgage

If the option period expires before you qualify for a mortgage, the seller no longer has an obligation to sell you the rent to own listing.

Most buyers make this mistake when they agree to a lease to own contract without checking how long it will take for them to qualify for a mortgage. If you sign up for a 24 month rent to own option period, but need 36 months before you can qualify for the mortgage you are destined to fail.

Keep this is mind…
You can have your attorney/Realtor put in writing on your paperwork that you have the right to extend your option period before it expires. This must also be discussed and agreed to between you and the seller/Realtor.

Paying WAY too much for the option fee

If the seller wants 5% or more toward the option fee, you may want to consider negotiating this cost, or consider researching other homes.

Don’t be one of those buyers who mistakenly puts up $20,000 for an option fee on a rent to own house only to end up losing it because you can never qualify for a mortgage.

It’s usually more practical to pay a larger fee upfront with owner financing because you are actually buying the home. But with a lease option you want to keep your option fee as low as possible.

You can watch the live recorded calls
here (it’s only 5 minutes and teaches
some cool stuff that will help you.)

Look – you can totally model this type
of phone conversation.

It’s a great way to find out if a home is
worth more of your time, while being
super comfortable making calls from
your home.

The reason I chose to give you this lesson
(besides the awesome quality ) is
because it shows you simple
questions to ask a seller to position
yourself in a way that can save you
TONS of money.

Anyway – copy these questions to
use during your own home search

Talk soon,

Cole

When buying a home using the rent to own method, you are renting as you normally would with a traditional home.

This is the same as any other house you have rented in the past. The main difference is, you also have the option to purchase the house within a certain time-frame.

Basically you find a home that you want to buy, but instead of buying it right away you simply rent the house.

While you are renting you will have time to save money, improve your credit, decide if the house is actually right for you, or do anything else that kept you from buying to begin with.

If you are looking to rent to own because you are currently unable to qualify for a mortgage, it’s important to determine how long it will take you to eventually qualify for a loan.

We will touch on qualifying in later videos where we will also help you to easily avoid mistakes like agreeing to purchase a house within 10 months and later finding out that it will take you 24 months to become qualified for your mortgage.

Rent To Own Home Details

Now that you understand how rent to own works. let’s discuss some more details that make this different from houses you have rented in the past.

Similar to an upfront deposit when you rent a house, you will pay a fee. This fee is commonly referred to as an option fee or option deposit.

It is important to understand that this fee varies from seller to seller. Some only require an upfront fee equal to your rent, while others request 10, 15, or even 20% of the sales price. Don’t walk away from those high fees….run!

Another common component of a rent to own is the rent credit. This is the amount of rent that would go toward your purchase price if you buy the home. This credit can be anywhere from nothing at all to 50% or even 100% of your rent.

Along with signing your normal rental agreement you will also sign something called an option agreement. This will contain some important information like the price you agree to pay for the home if you decide to move forward with the purchase. Also listed is the time-frame for you to purchase the home, the amount of your rent credits, the upfront option fee, and a few other details we will cover later.

First a brief overview of rent to own, which we explained in the previous video here and then we will explain owner financing and how it works.

In a rent to own purchase, which can also be called a lease option, lease purchase, lease to own, rent to buy, or the like, you as the buyer, or tenant, have the option to purchase the home at any time during the rental period.

This means you have the legal right to purchase the home for a fixed period of time, but you’re not obligated to purchase if you decide not to, or if you’re unable to qualify for a mortgage.

Here are some highlights of a rent to own purchase:

• You pay an upfront fee, commonly known as an option fee, which is usually non-refundable.
• If you end up buying, the option fee is credited toward the purchase price of the home.
• There is a deadline before which you must purchase the home. This deadline is agreed to upfront when you are negotiating with the seller and will be listed in your paperwork.
• The portion of the option fee you must pay upfront is negotiable.
• Your purchase deadline varies based on when the seller needs to sell the home, usually from 1-4 years.

Here are just a few of the benefits of a Rent To Own purchase:

• It can make a lot of sense if you are currently unable to qualify for a mortgage.
• It’s also valuable if you want the flexibility to decide whether to purchase at the end of the rental period.
• You’ll have time to improve a low credit rating while you enjoy the peace of mind of knowing that you can eventually purchase your home.
• You have the potential to build equity.
• Rent to own gives you the ability to check out all the features and any possible faults of the home during your rental period.

Now let’s take a look at Owner Financing.

This can also be called a land contract, seller financing, contract for deed or the like.

In this case, you make payments to the seller without using a lending institution or bank.

Unlike rent to own, you are actually purchasing the home once the paperwork is signed.

With owner financing you will want to use a title company and have all the steps taken you would normally take when buying a home with a traditional mortgage.

So you will want to make sure there is a title search, appraisal, etc.

Finding true owner financing offers are tough because the seller of the house needs to own the home free and clear, otherwise you would need to qualify for a loan to pay off the remaining balance of the seller’s mortgage.

Consider the seller for a moment who owns a house free and clear. If they create a mortgage for you with owner financing, they will not be getting any money at all other then the down payment you pay them, minus their closing costs.

So for a typical seller to consider owner financing they will usually want:

• A large down payment upfront
• Higher sales price
• High interest
• High payments each month
• Full balance as soon as possible

In order for a seller to receive their lump sum of money faster than the 30 years a traditional mortgage is today, the seller would include what’s known as a balloon payment or “call.”

The balloon payment mortgage is where the loan is financed over a traditional mortgage length like 30 years. But the full balance on the loan is due when the “balloon payment” is due. This can be any amount of time the seller chooses.

A balloon mortgage is common with normal bank financing but more so with commercial loans rather than residential houses.

An example balloon mortgage through a bank is the 7 year Fannie-Mae balloon, which features payments on a 30 year period. But like it states in it’s name the balloon payment is due in 7 years.

Based on our experience with owner financing listings from private sellers, a buyer can expect a balloon payment to be due in 2-7 years. But again, this is up to the seller and their needs. The number of years until a balloon payment is due is something that will be discussed upfront with a seller, along with the sales price, interest rates, and monthly payments.

You also want to make sure the balloon payment due date you agreed to verbally with the seller appears accurately on the paperwork you sign at closing.

As an example scenario, imagine an owner financing scenario with a 4 year balloon payment. This would mean that after 4 years you will have to either refinance the amount due to the seller with a traditional bank or pay the home off.

If you are unable to pay off the house when the balloon payment is due the seller can foreclose on the house and keep any money paid to them so far.

Here Are Some Important characteristics of owner financing:

• The seller of the property acts as the bank.
• The seller holds the mortgage from you as the buyer which is secured by the property as collateral.
• Owner financing may work well for buyers with poor credit, but you usually need access to a large sum of money for a down payment.

So the big difference between the two offers are, with owner financing you are a buyer and with rent to own you are renting but you have the option to buy at a later date.

Hopefully you now have a basic understanding of how rent to own and owner financing works. And you have probably already decided which method would be best for you.

We think it’s very important to mention the confusion many sellers have with these two very different options for selling and buying a home. You see, many of the listings offered as “owner financing” are actually what we consider a rent to own.

So before you decide to eliminate all rent to own or owner financed properties from your home search, it would be a better idea to search both types of listings. When you find a home that looks like it could be right for you, give the seller a call and ask exactly what is being offered.

Watch The Video:

In Later Videos:

We provide you with several tips to help you tell the difference between rent to own and owner financing listings, regardless of the term used in the listing. On these videos we actually record our screen while doing a live search of listings along with actual calls to sellers.

The live recorded calls will help you pinpoint the important questions to ask a seller with your initial call. We even provide you with a question form for sellers that you can print out and use.

Asking the right questions on your first call you make to a seller about their house can save you a lot of time and heartache.
Because many buyers forget to ask these important questions and end up making a trip out to the house and even get emotionally attached to the place. Only to find out later that it isn’t a good match.

We attempted to launch a brand new version of our site that was supposed to offer a much better experience for users. Unfortunately we have experienced some difficulty with the new version and had to remove it for the time being.

If you are experiencing any unusual results on the website, especially while you are searching rent to own homes, please contact us and let us know.

On the contrary, buying a house is not on everyone’s list.

While it’s true that everyone wants to own a house, not everyone can afford the pricey mortgage, repairs, and other associated costs when buying a house.

Those who can ill-afford the big down payment the lenders require  may find rent to own homes appealing. Rent to own ia a lease combined with an option to buy the property within a certain period, generally within 3 years or less at an agreed price.

Rent to own homes have gained the attention of many, due to the benefits it offers. Below are few:

• Taking a shot before buying the house

You can experience having a house without paying so much. You can consider this as your preparation in buying that house. If you find the house isn’t ideal, you can always choose not to buy it.

• You have time to repair your credit while living in the house

If you have bad credit, you have the time to establish your reputation and clear your bad credit history. You can still scout for mortgages with great bargains.

• You do not have any competitors

Unlike any other houses where you have to compete with other buyers, you do not have to compete as much in a rent to own setup. While you are under the contract, you are the only one allowed to buy. Moreover, you are not pressured to buy the house at any time.

• The value of the house may go up

If the value of the house goes up in the duration of the rent-to-own agreement, the seller cannot increase the price of the house. Consequently, the seller cannot sell the house to another buyer. The agreement between the buyer and seller is binding during the period.

• No taxes

Since you do not own the house yet, your landlord will pay the taxes on the home, unless otherwise agreed.

• Fast Approval

Unlike loans, rent to own homes approval is faster and lies in the discretion of the seller.

• Legality

You get the legal right to purchase the home within a certain period without actually owning it.

• Equity Growth

Usually a portion of the buyer’s rent payment goes to the home equity. A portion of the buyer’s rent goes to the down payment each month.

While the benefits of lease to purchase homes are quite tempting, you should always bear in mind to check your seller’s background. You should know as a buyer how a rent to own house works. In a rent to own property scenario, your money goes down the drain if you are not aware of what’s going on.

Tenants and landlords should arrive into an agreement where both parties benefit. Some rent to own properties can be structured in a way that only one party benefits.

Hence, you must be an educated tenant. Make sure your seller pays the mortgage if there is one. Above all, always put everything in writing. There are plenty of frauds out there.

If you want to make the transition to a lease to own property, having a good real estate agent could help you to get the best deal for your money.

This article will give you several tips and tricks to choosing the best real estate agent.

Allow me to run you through a scenario

You and your significant other decide to move towards the purchase of your first home.

You have selected your favorite neighborhood, you know how much you can afford and you have even already looked through many free rent to own listings to find housing with alternative financing options available.

Now that you have found your dream home you’re all set to make the purchase.

But how do you do it? Who do you talk to? What about all the paperwork? Are you going to be the one to negotiate the closing costs? What are your responsibilities when it comes to costs associated with the home?

These questions are just the tip of the iceberg when it comes to realizing that you do in fact need a real estate agent to help you through the process of purchasing a home.

Fortunately for you, there is no shortage of qualified agents and as soon as you make it evident that you are on the search for a home, you will have real estate agents banging down your door to represent you. The problem isn’t trying to find a single real estate agent, the problem is trying to find a good real estate agent.

Here are a few quick tips to helping you find the best real estate agent possible:

Start With The Agency

Instead of trying to deal with each individual agent, go straight to the real estate agency or broker and ask them to recommend their best real estate agent (or group of agents) to you.

This will help you weed out a large segment of agents that are no good.

Pick Based On Price

Once you have been given a list of names from the broker or agency, you need to start looking at what types of homes these agents have sold in the past. See if any of them have experience selling the types of homes that you are interested in.

Most importantly, select the real estate agent that works within your price range. Some agents only sell multi-million dollar homes (who wouldn’t – the commissions are great) while others specialize in finding mid-range family homes.

Don’t work with an agent that is going to try to get you to purchase more house than you can afford.

Choose Based On Fit

Purchasing a home is huge. It is one of the most important emotional, financial and familial decisions you will ever make. If you don’t get along with your real estate agent, you will be adding an unnecessary level of stress that could leave you with regret and a house you don’t really want.

Conclusion

Choosing the right real estate agent will help you to have a smooth buying experience. There are plenty of resources available online to help aid you in your search for a real estate agent.

If you are looking at the rent to own financing option to purchase a home for sale, then this article will offer you several benefits. This article will cover the topic of borrowing directly from banks in order to obtain a mortgage loan required to make the final purchase on the home once the rent to own financing contract has run its course on the renting portion of the contract.

You will be given a list of pros and cons which should allow you to better decide whether to borrow directly from a bank with a traditional mortgage or rent to own directly from the homeowner.

Pros

Reliability: There are not many financial institutions that are more reliable than banks. You may chuckle under your breath considering the past few years filled with bank bailouts end near runs on these lending institutions, but federally insured banks still remain the most secure way to borrow and save money.

Insights: Particularly with local banks, and or credit unions, these bank professionals can often give advice and/or insight to the local real estate market. Because they work on a daily basis with many future home buyers like yourself as well as home sellers, they have a really good idea of what the market trends and happenings are.

Convenience: Essentially, national banks are built around convenience. If you are considering the rent to own finance option for your home, this convenience may play a paramount role in your ability to gain a mortgage. Why is that?

Because the bank will have to play the intermediary role between you and the home seller. Maximizing convenience for both you and the home seller will allow a faster process and a smoother transition into the purchase of the home.

Cons

Not as many options: One of the major problems with lending from a bank to pay for a rent to own home for sale is that banks are very much unlike brokers. Banks are not interested in finding the best loan for you, they are interested in you loaning from them.

Brokers will shop around for the best loan and try to get you a really good deal, but there is no incentive for a bank to try and work with another bank to get you a loan.

Banks may also only be qualified to offer certain types of loans for particular types of properties of which you are not interested in. Being limited in this way will cause you to waste time and possibly money if you are forced into a loan that is more expensive than if you had just hired a broker.

Delays: Banks have almost no financial incentive to hurry the process along.

Think about it this way, many banks are run similarly to the way that McDonald’s is run. They are staffed with hourly workers that receive no incentive for processing loans or mortgages faster than they need to.

If you are in a rent to own home, you need speed on your side because your contract could run out before you are able to obtain a mortgage to purchase the home.

Conclusion

Now that you have seen a brief overview of the pros and cons of lending directly from a bank to purchase a rent to own home for sale, you can confidently move forward knowing that you’re armed with the knowledge necessary to get the best deal.

This article will run you through the basics of determining whether or not you are qualified for a future loan before you enter into a rent to own contract.

Since the goal of a rent to own contract is to give yourself some time to get your expenses in order before purchasing a home, you should have a plan on how you are going to save that money to purchase the home.

The Ball Is In Your Court

Ultimately, only you can determine what kind of home you can afford and how much you want the monthly payments to be.

Sit down with your significant other (or if you’re by yourself) collect all of your income and debt statements. It will be important to know exactly how much you make on a regular basis and exactly what your current debts are.

One of the most common mistakes that people make when preparing to finance their homes is that they will often inflate, in their minds, their actualized income.

Perhaps it is because they do not account for insurance, taxes or other automatic withdraws from the account, but knowing exactly how much you bring home on a monthly basis is going to play a huge role in your ability to get a mortgage.

What Are You Spending?

Assuming that you have decent credit, it is actually your monthly spending that becomes more important in the mortgage finance calculation than any previous debts that you may have or have had in the past.

For example, you may have a $5000 car loan that you pay on a regular basis, but that monthly payment can factor into the actualization of your monthly income.

What is more important is figuring out how much you spend on eating out.

How much do you spend on entertainment? What about clothing?

You need to collect your spending data. You don’t need to detail exactly where every single penny goes in your spending, but taking a look at the last 12 months will allow you to better prepare yourself moving forward into a rent to own property.

Remember, with a rent to own you will be paying rent plus a monthly fee during the contract period. Factor this into your calculations.

Conclusion

By making yourself aware of your spending habits, you can prepare yourself to enter into a rent to own contract with confidence. You will be able to create a plan to save money for a down payment on the home of your dreams.

A lease option will allow you the time to do that!

Check out some of the homes listed on our website to see what kind of homes you could potentially qualify for at RentUntilYouOwn.com.

Budgeting for closing costs is incredibly important because closing costs can account for up to 8% of the total property. If you are going to be using the rent to own finance option to buy yourself some time to save up money or to repair your credit, don’t forget to factor in that extra 8% in order to close the deal.

Here are some of the major closing costs:

Escrow fees: Escrow fees are basically the paperwork fees. These fees cover all of the home purchase related documents and funds. Typically escrow fees are several hundred dollars and are based entirely on the purchase price of your home.

Title insurance: Title insurance is incredibly important in the rent to own situation. Why? Because title insurance protects you and the lender, typically the bank, against the possibility that the person who is selling the home is not the actual owner of a home. While most insurance can be easily sloughed off, title insurance is going to be one of the major players in protecting you as a tenant of the rent to own contract. Title insurance typically costs several hundred dollars and again depends on the purchase price of your home.

Property tax: With the rent to own option, it is important to be aware of the property tax valuation on your home. For example, in some cases you may actually be required to pay the property tax payments that the seller has paid in years past as advanced payments. In other words, if the home seller thought he was going to stay in the house forever and paid his property taxes years in advance, you could now be liable for these costs in the form of a closing costs payment.

Property inspections: Again, we see another unique aspect to the rent to own option that makes closing costs a little bit more unique than the typical mortgage closing. When you are negotiating a contract for a rent to own financing option you may want to have the property inspected long before the end of the contract at which time you can purchase the home.

For this reason, property inspections may not be a part of your closing costs, but actually a part of your moving into the property. If you are sure that this is the house that you want, you can go ahead and have the property inspected at the beginning of your contract. If however, you are not completely sure of that particular home that you are renting, consider waiting until the end of your rent to own contract and the time for purchasing the house has come. There is no sense in paying for something that you will never use.

Conclusion

As you can see, the rent to own financing option offers many unique spins on traditional aspects of obtaining a mortgage in purchasing a home. Now that you know some of the unique closing costs associated with the rent to own financing option, you are better prepared to move forward with confidence in purchasing your very own home.