Benefits Of Rent To Own Homes For Buyers?

Rent to own homes offers both home buyers and home sellers advantages.  For home buyers, it offers great benefits if the home buyer has recent credit issues such as a bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure or recent derogatory on their credit reports where a 12 month on time payment history can be established.  There are mandatory federal waiting periods after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.  The waiting period after a bankruptcy for a home buyer to qualify for a residential FHA insured mortgage loan is 2 years from the discharge date of the bankruptcy.  The waiting period is 4 years for a home buyer to qualify for a residential conventional loan after the discharge date of a bankruptcy.  The waiting periods are 3 years after a foreclosure, deed in lieu of foreclosure, and short sale for a home buyer to qualify for a FHA insured mortgage loan.  The waiting period is 7 years after a foreclosure for a home buyer to qualify for a conventional mortgage loan.  The waiting period is 2 years after a deed in lieu of foreclosure or short sale for a home buyer to qualify for a conventional mortgage loan if the borrower has a 20% down payment on his home purchase.  The waiting period is 4 years after a deed in lieu of foreclosure or short sale for a home buyer to qualify for a conventional loan only if the home buyer has a 10% down payment on his home purchase.  Any home buyer with less than a 10% down payment after a deed in lieu of foreclosure or short sale, the waiting period is 7 years from the recorded date of the deed in lieu of foreclosure or the settlement statement reflected on the HUD to qualify for a conventional loan.  If a home buyer wants to be a homeowner prior to waiting out the mandatory waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, then rent to own homes is a great route to take until they can qualify for a mortgage loan.  The waiting period gives the rent to own home buyer an opportunity to re-establish their credit.

Other benefits of rent to own homes is that part of the monthly housing payment, rent, can be allocated towards the purchase price of the home and the home buyer of the rent to own home starts developing equity.  On rent to own homes, the price of the home is already agreed upon and when the eventual purchase date rolls along, whether it is one year or three years from the contract sign date, the agreed upon purchase price will not go up.  Home buyers of rent to own homes can take the advantage of potential appreciation which results in instant equity.  Those entering into rent to own homes can check out the neighborhood, the ammenities the neighborhood has to offer, and the public school system before actually closing on their rent to own home.  The negative aspect of rent to own homes is that if the home buyer decides not to purchase the home at a later date, he or she may lose the portion of the payment that goes towards the purchase price and the initial down payment.  It depends on how the deal is structured originally.

Benefits To The Seller On Rent To Own Homes

If there is more supply of homes versus demand, rent to own homes is a great way of selling a property.  The sellers do not have to sit months to have their homes sell or get low balled by a home buyer in lieu for a quick sale.  Sellers of rent to own homes can normally get a descent price for their homes.  Rent to own homes are homes that the tenant is interested in purchasing now but do not qualify because they cannot get current financing and the purchase closing date has been extended to a future date.  During this time, the renter will have a chance to work with a mortgage lender in re-establishing their credit and preparing to get qualified for a residential mortgage loan.  A seller will require a non refundable deposit from the rent to own home buyer so the buyer has skin in the game.  In the event if the buyer does not close on the home at a future set date, the date can be extended or the contract be modified or the agreement can be terminated.  If the buyer terminates the purchase contract, the buyer can lose all of his or her earnest money.

Both Buyers And Sellers Need To Be Cautious

Having attorneys represent them is strongly recommended for rent to own homes as well as extensive due diligence by both sides.  Buyers should have a home inspection done to make sure that the home is free of any major repairs.  Buyers should also have an appraisal done to make sure that they are not paying too much for the property even though that the actual purchase will not be done until a later date.  Buyer should have their attorney to do a title search to make sure that the home has clear title and not a bunch of liens where even though the home will not close until a later date, there will be no issues.   Buyer should make all deposits as well as rent payments with a bank check and never use cash so they can document that they held their end of the agreement by making timely payments.  Plus the future mortgage lender will want to see cancelled checks to verify verification of rent.

Home Sellers Due Diligence

Sellers need to make sure that the buyer is able to afford the payments of their rent to own home.  They should make sure that the buyers have stable jobs and income and get a copy of their credit report and review their credit history.  Does the buyer have a good credit paying history and just a few periods of bad payment?  If the buyer has had a 10 year payment history on their credit report and the past two years have been bad due to a job loss and the buyer just got a new job and needs a little time to re-establish their credit in order to qualify for a residential mortgage loan, then this buyer might be a great candidate.  If the buyer has always been late on their payment and has been a job hopper for many years and has tons of collections, judgments, and charge offs, the chances are that the buyer is financially irresponsible.  You can hire a third party property management company to do a full background check and give you their opinion on whether the buyer is a good candidate for you or not.
The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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