Rent To Own
Rent To Own & Credit Issues
One of the main reasons that people seek a Rent To Own a home is credit issues. A good candidate for a Rent To Own home is a person who has credit issues that can be resolved in one to three years. Don’t just wait for your credit to fix itself. It takes time and attention to make a difference in your credit score.
The first step in the process should be obtaining a copy of your current credit report from all the bureaus.
You can usually obtain these at no charge.
Knowing your credit score is not enough.
You must also know which items on your credit report would prevent you from obtaining standard financing.
Your ability to qualify will ultimately be determined by the lender that you decide to use.
One other thing to keep in mind is that lender credit requirements change.
It currently requires a minimum average credit score of around 620 to qualify for a standard home loan.
This is only one factor that lenders use to determine your eligibility.
Lenders do not want to see late payments within the last year on credit cards and current loans or bankruptcy or foreclosure within the last three years.
Tax liens, judgments, and child support must either be paid or have a payment plan that has been paid as agreed.
All of these factors are only general guidelines and vary form lender to lender.
To be sure about your chances of qualification you should make an inquiry about your ability to qualify periodically with a local lender.
Some loans can be less restrictive that a standard mortgage.
You may want to start there.
Other factors that may influence your loan approval are length of employment, income, other debts, self-employment, and the amount of the loan.
To ensure that you will be able to purchase a Rent To Own home at the end of the lease period you should monitor your credit and take the necessary steps to improve your credit score.
There are a number of services that will work with you to accomplish this.
Using a well know law firm in the process of your credit repair is recommended.
Your credit-monitoring program should be in the hands of experienced professionals to get the best results.
When financing with a lender is involved it can take from a week to as long as two months to actually move into your new home. Home appraisal, inspections, and gathering documents required by the lender can involve both time and expense that is not part of a Rent To Own home process. Normally you can move into the home as soon as you have paid your option fee and lease payment.
Lenders such as banks and mortgage companies have qualification guidelines that must be met by the applicant in order to issue a loan. These qualifications usually include a minimum credit score, debt-to-income ratio, minimum employment history, tax records, and affordability ratios.
With a Rent To Own home the guidelines are up to the current owner of the home and are usually more relaxed. The most important factors are usually the ability to pay the option fee, monthly lease payment, and possibly rental history.
In a lender financed situation you will be required to have your down payment in hand when you apply for the loan. Down payment requirements can be as high as 20% of the purchase price depending on the borrower and type of loan. With a Rent To Own home you can actually save your down payment while living in the home via the Monthly Option Payment. When it is time to secure standard financing the owner can discount the home by that amount to provide you with an equity down payment.
Cleaning Up Your Credit
You can live in your home while you are in the process of improving your credit. If it will take three years to get your credit in shape then you should set your lease to coincide with this time period. Renting To Own let’s you move in while you are in this process while a standard lender would require you to meet those qualifications beforehand.
Try Before You Buy
Although you have made a partial commitment in the form of an Option Fee in some situations you may find that buying a particular home is not an advantage for you. Rising property taxes, undesirable neighbors, rezoning, declining property values, and ndisclosed or unknown major repairs are just a few situations that could affect your home purchase decision. With a Rent To Own home you can walk away at the end of your lease period. Remember that you will have to forfeit your option fee if you do this. In a standard lender financed situation you will have to sell the home to recover from an adverse situation.
No Closing Costs
Closing Costs are the expenses that you incur to complete a home purchase. These can include lender fees such as points and origination fees, title fees, appraisal fees, nspection fees, etc. These costs often amount to thousands of dollars. Although you will have to pay these costs if you ultimately decide to purchase the home, you will avoid them when you move in.
Higher Sales Price
Some sellers may want a higher price for a Rent To Own buyer than a cash buyer. Remember that everything is negotiable when you are purchasing a home whether it is a Rent To Own home or a cash purchase.
Owner Title and Liens
With a lender financed purchase it is customary to use a title company or attorney to verify that the property has a title that is free of liens and other encumbrances. In a Rent To Own situation you are responsible for researching this information.
If the seller cancels the lease due to late payments you can also loose your option fee if it is part of your lease. Making the Purchase Option a separate agreement may avoid this and also may provide you leverage in this situation to continue the lease agreement or negotiate a better deal.
Death Or Disability Of The Seller(s)
The Rent To Own agreement should contain provisions that would come into play upon the death or disability of the seller(s). In some cases this situation can be covered by insurance.
Major Improvements Become Seller’s Property
Although a Rent To Own home may be a great path to ownership in many situations it may not be advisable to make major improvements to the property during the lease period. If the option to purchase is not exercised or the lease is cancelled improvements that you have made will become the property of the seller.
Your agreement should stipulate that the landlord / seller will not transfer title to the property while your agreement is in effect. You may also want to be notified in the event of any additional encumbrances on the property. Knowing your seller is very important in a Rent To Own purchase.