Is "rent to own" a scam of sorts?

Question

Owner wants 5 grand down, 800 monthly, find your own financing after 24 months. I feel like im being "set up"......any help?

Answer 1

If you qualify for a loan with a lender you might be better off making the loan with a local lender, you didnt say what interest rate the seller was giving you.

Real estate/land contracts are a method of purchasing property upheld by almost every court in the nation if done properly.

The reason why a seller offers realestate/land contracts or lease to own programs are because the borrower either does not qualify for a regular loan or does not have sufficient down payment for a regular loan or the terms are better than a regular lender at the time the offer is made.

In your case the seller and you have obviously discussed your ability to get a loan within a short period of time and you have stated to the seller, that for whatever reason,you can not get or are unwilling to get a regular loan right now and therefore the seller has placed a balloon on the contract that calls for you to pay off the loan within two years of the anniversary date of the contract and or exercise the option to purchase clause in your contract because he might be assuming that you will be able to qualify for a regular loan with a regular lender in two years. Another reason is that perhaps the seller's own loan on the property is due within 24 months. Or indeed he knows that you can not qualify for the loan withing 24 months and he will be able to get the property back, keep your money and sell the property again.

It is also important to know whether the seller has the right to offer an owner financed program. If the seller has a loan it might have a due on sale clause that requires the seller to pay off the loan in the event that the seller sells the property using any type of sale program, you can ascertain these issues by ordering a title binder that will show what liens and encumbrances are on the property before you commit to purchasing the property and your offer to purchase should be contingent on these factors.

If you will not be able to qualify for a loan withing the 24 months then you should reconsider since if you do not pay the loan off within two years the seller can take the property back pursuant to the terms outlined in the contract and you would loose whatever money you have invested in the property along with the propietary property interest you did receive.

Because of the above stated opinions I do recommend that you speak with a local real estate agent for guidance and or a real estate attorney that can review the terms of the contract being offered to you and give you legal advice. If you can not afford an attorney I highly recommend that you speak with a local licensed real estate agent for his or her guidance before you make a decision.
Buena Suerte

Answer 2

I have found out that a rent to own item usually will be a lot cheaper in the long run bought in a different way. especially tv's or such type items, although houses are an other matter, my daughter bought their house that way and they had a decent landlord who did apply the rent toward the total. the best thing for high price items is to try to get the loan from the bank before you by, and tell them why you need it. the interest is about 1/2 that way. Hope this helps. Gail C

Answer 3

That's more like a lease with option to buy.

An extremely common ploy with contracts such as that is to declare the purchase option void if you're a single day late with a lease payment. If that happens, your down payment is history. Ditto if you can't get financing in 2 years!

Have a local real estate attorney review any proposed agreement!

Answer 4

It is illegal but they figure if they can get some poor fool to send out a hundred of these letters, they will average 3-5 back and still get their pay day. In today's society it seems like a lot of people are thumbing noses at what 'illegal' means. They will hook a couple of down and out people to do their dirty work, it is always those who can least afford it who get taken in.

Answer 5

The thing of the matter is that he does not want to "get stuck" with it if you really don't. He is looking to sell it and he is cutting you a break for two years it seems, You should ask but i think you can opt-out before the two years is up. its a win win for you both that way. If you don't want it he still had the mortgage payed for two years and you had a house to live in.