I have been house hunting for 2 months now, and have yet to find something I like that is in the price range. yesterday I spoke with a gentleman who is renting a house but said he would do rent to own with us. I explained to him we could get financed for a house but we dont have a large sum to put down or to cover closing costs. He said we could rent the house for a year and finace it as a refinance. can someone explain. He said our rent money would show equity in the house.
2006-09-13 02:50:54 · 5 answers · asked by fryedaddy 3 in Business & Finance ➔ Renting & Real Estate
Sounds like you are not the only one who is confused. The owner is either lying to you or not knowing what he is talking about.
If he does a rent to own, you need to find out exactly how he treats your monthly rental payment. If he treats your rent as down payment, and assume you pay $1000 a month and stay there for a year, that means you will accumulate $12,000 of down payment for 12 months. It is like an installment payment. However, since he consider the $12,000 as your down payment, you will be effectively live there for a year rent free. If that is in fact his intention, then get it in writing and be sure to use an attorney to draft up the contract. Don't be penny wise and pound foolish.
On the other hand, if he merely grants you rent with an option to buy, you have not accumulate anything as far as down payment or equity is concerned and you will have zero equity.
As for refinancing, since you never own the house in the beginning, therefore you never had a loan to begin with, how can you refinance? You will have to make application for a new loan. Make sure it is well docuemented that your "rental" payments are in fact credited as equity and credited towards the purchase price.
Finally, the hidden left hook that can floor you. If you in are going forwards with this, make sure you have the house appraised and agree with the seller on the price to purchase before you enter into contract. Otherwise, in the middle of all the excitment, you may agree to a price higher than what the bank is willing to lend. By the mean time the seller have your so called "down payment" Then you are really stuck. Please be careful with this.
2006-09-13 03:28:50 · answer #1 · answered by Anonymous · 1⤊ 0⤋
It happens. Probably what he really wanted to do was sell, but nobody's buying right now, because in the normal course of things, it's hard to find a rent to own deal that is a good deal for both buyer and seller. So get a professional who knows what they're doing on your side - there are a lot of things that can be stacked in one person's favor or another about that contract.
If you can't find something you like in your price range, it's more likely you need to 1) keep renting or 2) re-evaluate the characteristics of property you'd be happy with. Don't think there's some magical way for you to buy a better property with the same amount of money. Most certain way I know of to get in trouble with real estate is stretching beyond your budget.
2006-09-13 10:09:50 · answer #2 · answered by Searchlight Crusade 5 · 0⤊ 0⤋
Rent vs. Buy as Housing Market Continues to Slump
As housing market slump, it is easier to calculate "Rent vs. Buy" scenario. Because "appreciation" is no longer a factor.
Mortgage payment consists of two parts: interests and principal. Interests are like rent, which doesn't add to the equity to your house. It simply disappear as your pay it.
If interests portion of the mortgage payment is roughly equal to rent of equivalent property, then it is a decent buy.
For example, let's buy a $500,000 condo with 0% down and apply interests only loan (just like renting a place). Mortgage payment would be $3250/month. It is a bad buy, because you can enjoy same property for $2000/month.
Please note that I assume the tax benefits from home cancel out fees from home association and property tax. For more accurate calculation, consult with your CPA or accountant. But NOT your realtor, whom will say anything to get the deal to go through.
And again, if you like a particular property, then paying more may be reasonable. You are the only person who can decide how much more premium you are willing to pay.
http://biz.yahoo.com/brn/060909/19463.html
http://money.cnn.com/2006/09/08/real_estate/caught_in_the_bubble/index.htm?postversion=2006090814
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514
2006-09-14 05:28:24 · answer #3 · answered by Price is what you pay for value. 3 · 0⤊ 0⤋
I've never done it but I have heard of it. Usually in this case the owner will allow 'some' of your money to go towards the purchase price. I would talk to a real estate lawyer just to make sure. You also want to find out what you will have to pay for the house. If the value goes up over the next year do you have to pay a higher purchase price or is it fixed at today's value? Talk to a lawyer.
2006-09-13 10:00:19 · answer #4 · answered by BrianR 2 · 0⤊ 0⤋
lease option
http://www.century21-heritage.com/FAQlease_options.htm
2006-09-13 09:59:21 · answer #5 · answered by Anonymous · 0⤊ 0⤋