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Rent to Own Homes FAQs:

What are rent to own homes?
Rent to own homes, otherwise known as Lease Purchase, is simply renting property with the option to buy the property in the future at a pre-negotiated price. Simply, lease purchase aligns two separate real estate transactions: (1) a lease contract and (2) an option contract right to purchase.

What are owner financed homes?
An owner financed home is when a seller of a property sells the property and has the ability and willingness to carry the financing associated with the property. In other words, the original seller is acting as the "bank" in these for sale by owner homes.

Are rent to own homes the same as owner financed homes?
Rent to own homes and owner financed homes have some differences. The one similarity is that both are for sale by owner homes. Each deal will vary because if a seller has an existing mortgage, an owner financed opportunity will not exist.

Owner financed homes are opportunities where motivated sellers or investors have no remaining mortgage or a very small remaining mortgage on the property. In this case, a deal may be structured as an owner financed deal or it may initially be structured as rent to own homes are and then later converted to an owner financed contract.

Does rent to own homes or owner financed homes require a down payment?
Yes, as is the case in most for sale by owner homes. In both cases, upfront money is required. With rent to own homes, the initial down payment is called "option credit," "option consideration" or "option money." The down payment "option money" is applied toward the purchase price of the property.

This "option money" is non-refundable. Therefore, if the tenant/buyer chooses not to exercise their option by the contract deadline date, the "option money" and any rent credit is non-refundable.

In the case of owner financed homes, an actual sale takes place. The seller is transferring title to the buyer and the seller has now created a mortgage debt instrument with the property as collateral.

Do I need good credit?
Your credit score will be taken into consideration. However, owner financed and rent to own homes are for sale by owner homes. Therefore, sellers understand that many of the tenant/buyers will be improving their credit in the upcoming months. As a result, stable employment, income and the amount of revolving debt a tenant/buyer has are considered more heavily than credit score alone.

Do rent to own homes and owner financed homes have a higher purchase price?
Yes. Normally, anytime one purchases property with "terms", as it's called, one can expect a purchase price that is at the upper end of the current market. To learn more about purchase price and terms click this link now!

What other requirements are there with for sale by owner homes?
For the most part, rent to own homes require that: (1) tenant/buyer understands that rent must be paid on or before the first of every month for rent credit to apply. There is no grace period; (2) tenant/buyer will perform live inspection of the property prior to move in; (3) tenant/buyer is responsible for their repairs on the property; (4) tenant/buyer provides initial option consideration payment which is applied to the purchase price upon exercising option. Otherwise, "option credit" is non-refundable with rent to own homes.

Are there any risks when purchasing for sale by owner homes?
The risks vary and depend on the deal. In an owner financed home, the risk is almost entirely eliminated because the seller is acting as the "bank." In the case of rent to own homes, there is some risk regarding the "due on sale clause" embedded in the seller's existing loan. That said it is extremely rare that this risk should ever occur with rent to own homes. For more information regarding "due on sale" risk and the Garn ACT click this link now!

For further questions regarding rent to own homes and owner financed homes, contact us. We look forward to hearing from you. While you're at it, click our Facebook "Like" button to keep up with the latest in real estate!