Rent A House To Own With Bad Credit
Let's say your credit score is lousy, perhaps you've been through a bankruptcy or foreclosure, or maybe you simply don't have the money to make a big down payment, but you still have the American Dream of owning your own home someday.
Well, there is a way and it's called "rent to own homes" (aka "lease to own homes"). This isn't a new concept, but it's one whose time has come in this economy and is really taking off. Some believe this option will change the way people buy houses in the future. This article will explain why and give you the details on how YOU can rent a house to own.
One of the huge benefits of the rent to own homes concept is that during the lease period, you will have time to work at improving your credit and work with the credit agencies to improve your score.
Instructions
1. GET YOUR DUCKS IN A ROW.
OK, you want own a home. However, your credit is shot or you just don't have much money saved to afford a big down payment and closing costs. But, you do have a good job and with your income you CAN afford to make decent monthly payments (this is critical).
So, the first step to rent a house to own is to get a good handle on your finances and understand exactly where you stand and the size of monthly payment you can afford.
2. FIND A HOUSE.
There are several ways to rent a house to own. But, your best bet to find a house that's right for you, might be working with a real estate agent (realtor). The good ones are familiar with the market and know the details about houses on the market -- including rent to own houses (lease to own homes could also be condos) as well as homes for sale. (Often, home sellers have never considered the "rent a house to own" option and your realtor can make that proposal on your behalf if you like the house. This could turn into a win-win scenario for both parties if the seller has been having trouble selling the house.)
3. EXECUTE THE "RENT A HOUSE TO OWN" CONTRACT.
Alright, you've found a house you like and can afford the monthly rent payments. Here are a few things you should expect and look for in the rent a house to own contract:
1) OPTION FEE: In essence, this a deposit. This fee is often several thousand dollars. You should ensure that this is credited towards your down payment if and when you decide to purchase the house when the lease term expires. If you decide not to buy the house or can't qualify for a loan at the end of the lease, this is usually forfeited. However, you should try to make this fee refundable in that event if at all possible.
2) RENT PREMIUM: When you enter into a "rent a house to own" agreement, you will typically pay a little more each month than you would if you were in a standard rental contract. This is because a "rent premium" is added to your monthly payment. That amount will be credited towards your down payment if and when you decide to purchase the house at the end of the lease term. On the flip side though, if you don't buy the house, you forfeit the accumulated rent premium.
3) HOME PURCHASE PRICE: When your lease term expires, this is the price that you agree to pay for the house. It's locked in. This can be great if you are in a market where home prices are increasing -- your house can be worth more than the contracted price! However, if the market declines, your house could be worth less than the contracted price. So, make sure you do your homework -- it's a bit of a gamble for both you and the seller.
4) ASSIGNMENT CLAUSE: Assignment means that you can sell or give away your right to purchase the house at the price you contract for in the "rent a house to own" contract. At the end of the lease term, if you decide you don't want the house or can't qualify for a loan to buy it, this is a great alternative for you. It protects the Option Fee and Rent Premiums that you've paid - and if you can find a buyer, you should be able to get those monies back without having to forfeit them (and maybe even make a little profit). However, savvy sellers usually won't go for this, but it certainly doesn't hurt to ask!
5) LEASE TERM: Rent a house to own contracts usually range from 1-3 years. If your credit needs repairing or you are in a sluggish real estate market, you may opt for a longer term to give you time to fix your credit and/or give the market time to turn around. (Go shorter-term in a hot real estate market.)
4. MOVE-IN!
That's it. Those are the mechanics of rent a house to own with bad credit. As you see, for little money down and NO CLOSING COSTS, you can still live the American Dream.
5. FOR MORE INFORMATION:
Click on the link in the "Resources" section below titled "LEASE-TO-OWN HOMES"
Tags: rent house, your credit, down payment, lease term, purchase house, real estate, American Dream
