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Rent to Buy Option?

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teton
Regular Contributor

Rent to Buy Option?

Since the housing market is going through such a tough time, do you think many sellers would do a rent with option to buy? How does something like that usually work? I know this isn't directly a mortgage question, but is some what related.
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4 REPLIES 4
BrianB_The_Loan_Professor
Valued Contributor

Re: Rent to Buy Option?

It is common in a down market but as a buyer you MUST exercise caution to make sure the seller is actually continuing to pay the mortgage. The easiest way would be to make arrangements to pay it yourself.

Lease Options are fairly straight forward. It is a contract based on todays prices.

The option is where the buyer has the choice at the time the contract is supposed to close to decide to follow through or not - the Seller is protected because they collect a non refundable option deposit up front which if you follow through goes towards the sales price if not then you lose it. There are two contacts the lease and the purchase. One is the rental agreement the other the sales agreement.

 

If you do a search on Lease Option you can get more detail..

Good Luck

Brian

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Brian B The Loan Professor
Mortgage Banker - offering FHA, VA, USDA , and Conventional mortgages in all 50 states -

If I do not respond to a follow up question please feel free to contact me directly
Message 2 of 5
Anonymous
Not applicable

Re: Rent to Buy Option?

Rent to Buy options are no different than you the renter saying I will pay them $1,200 per month while I sock away $300 per month for one year..........

 

Don't get into a sticky contract when you can do it yourself. 

Message 3 of 5
Junejer
Moderator Emeritus

Re: Rent to Buy Option?

I will answer that question in the affirmative, as a person who has a couple of investment properties. I have one under a lease option right now and one that is being rehabbed, that I would definitely put out as a lease option.






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Message 4 of 5
ShanetheMortgageMan
Super Contributor

Re: Rent to Buy Option?

Lease-to-purchase's usually benefit the seller in a down market and the buyer in an up market, because you usually agree to lock into a price when you enter the contract - so if values have fallen since you've entered the contract, and you've locked at a price above values, then you could easily lose your deposit.  You could have it open-ended with a neutral appraisal when you want to excercise your option, but that's leaving things open to interpretation at that time.  If you are trying to accumulate a down payment for permanent financing later you will have to pay fair market rent and then money on top of that.  Like Brian pointed out, some of sellers who are trying the lease-to-purchase are underwater on their mortgages themselves, and are just using this as a way to collect an upfront large sum of money along with a little higher rents, all while not making their mortgage payments and walking away never to be heard of again - once the bank takes the home back, you are out.  So, check out the person you are getting into contract with as much as they are checking you out.  As a landlord, this would be my favorite way to rent, you have someone living in the home and treating it as if it were their own, then on top of that they paid me a large sum of money up front to buy the home at a later date which they may or may not be able to do, and also paid me a little bit more each month than the normal rent as well.

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