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Does anyone know how rent to own works?

I been wanting to buy a house but my credit is not so good. So I been thinking about rent to own if i would be able to do that. Does anyone know how it works? Do I need a down payment? How much would my payments be? Where do I go to find rent to own houses?

Public Comments

1. If your credit isn't great, you may still have difficulty finding a landlord or rent-to-own agent willing to take you on as a tenant. Even in renting, the landlord will first credit check you to make sure that you're likely to pay your rent. If your poor credit suggests that you aren't reliable or good for your debts, you'll have the same trouble as if you were trying to get a mortgage outright, more or less. Have you seen a financial advisor about ways to improve your credit rating? Whether you need a down-payment or not will depend on the terms of the contract. In most cases, you'll only need a security deposit, although because of the nature of the transaction this may be slightly higher than in conventional renting. Without knowing where you live, what sort of property you're looking to rent/own, or anything about you, its hard to be specific about where you'd look or how much you'd pay per month. You might want to contact estate agents in your area and ask if they know about or represent agents for any rent/own schemes.
2. I have done several rent to own purchases. Just like any other mortgage, the amount of monthly mortgage payment would depend on the sales price of the house and the interest rate. The higher the sales price and interest rate, the higher the monthly mortgage. Also you would have to have money in hand to pay closing cost and escrow fees. Most Realtors do not like to do Owner Will Carry because the Realtor may have to wait for the commission and it is complicated to protect both the seller and buyer. They will try to steer you away from OWC sales. However, every time there is a recession, OWC becomes popular as a way for people who don't qualify for a bank loan, but are solid to purchase real estate. You will need an attorney to draw up a contract that is the Rental Agreement and Land Sales Agreement that states you will exercise your purchase right by a certain date, all monies received by that date, within that calendar year are considered down payment. If you fail to exercise your purchase right, all monies received that calendar year are considered rent for you having lived in the house, and you don't have any claim to get any of it back. Most rent to own contracts run January to December. You must pay rent for a full year, and then exercise your right to buy prior to Dec. 31. This is because federal IRS laws treat money from rent differently than money from sales of property. They require different forms and are taxed at different rates. If the contract overlapped a calendar year, then the seller would have to refile his tax returns for the prior year. Be sure to use an escrow company to perform a title search to ensure the seller is current on his mortgage payments and their aren't other liens against the property. Make your monthly rent / down payment to the escrow company. The escrow company pays the mortgage payment to the bank, and sends anything left over to the seller. That way the bank gets paid before the seller gets paid and you are protected from foreclosure by the bank. Use this same method to make monthly payments after you exercise your right to buy. When you exercise your right to buy, the escrow company will have the seller sign a deed to you. The Escrow Company will hold the deed until you pay off the property, then they will file it in the county records. By that time, the bank will have been paid off and the deed in the sellers name filed in the county records. When the escrow company files the deed in your name, it is your house. The down side is you will pay 2 - 3% higher interest rate than the banks charge because of the lack of down payment. Also almost all OWC contracts have a clause saying the buyer ( you ) can't allow any liens to exist against the property, or the seller can foreclose. You must also pay off any lien from contractors or law suits or other bad debts you have. That also means you can't get a second mortgage unless you pay of the entire amount owed to the seller. Which you will probably want to do as soon as you get enough equity in the home to meet bank requirements for a refinance because fo the 2 - 3% higher interest rate you are paying. The upside is you get to buy a home that you otherwise wouldn't be able to. Remember, when you pay rent, you are paying the mortgage, taxes and repairs for someone else and they get to keep the property.
3. my peers are partly correct. A rent/lease-purchase option is like any contract; it gives the holder of the option rights but not obligation unless it is put into action. I guarantee some home owners will accept a no money down deal but you will have to search for them. It is DANGEROUS for them to accept you. Same with a RE buyer's agent; you are POTENTIAL business with a lot of risk. suggestion, find out why your credit is not so good. stop smoking if you do smoke, stop drinking if you do drink. stop gambling if you do that and drugs if you do that. save your cash, pay all bills on time. NO excuses. when you have done that PERFECTLY for 3 yrs, your credit score will shoot up and stay up. then, you will have 10-20K in the bank and few debts and you can buy any house with a direct bank loan. available to guide further