Cory Thompson

Mid America Mortgage, Inc.

  • About Us
  • Blog
  • Mortgage Info
    • Buyer Info
    • Seller Info
    • Closing Costs
    • Home Appraisal
    • Home Inspection
    • Loan Checklist
    • Loan Process
    • Loan Programs
    • Mortgage FAQ
    • Mortgage Glossary
  • Zillow Reviews
  • Pre-Qualify
  • Contact

Rent-To-Own Opportunities For Those With Bad Credit

July 9, 2019 by Cory Thompson

Rent-To-Own Opportunities For Those With Bad CreditFor those who have less than a stellar credit history; yet, who still want to have their own home, a rent-to-own option is worth considering. A rent-to-own (RTO) agreement is a hybrid between buying a home and renting a home.

Usually, RTO deals require a significant down payment that applies towards the home purchase. An RTO tenant/buyer gets the option to buy the home for a certain price at some date in the future. The down payment is lost if a tenant/buyer does not go forward with the home purchase.

Another common characteristic of RTO deals is that a portion of the rent applies to the home purchase.

The Pros Of Rent-To-Own Deals

The significant down payment on an RTO deal is usually more than would be required as a security deposit for a lease agreement on a home of a similar type. This down payment gives the home seller/landlord the financial security needed to let a person occupy the home even if they have a bad credit history.

In some cases, the party offering an RTO sale does not even bother to run a credit history check on the RTO buyer.

The seller/landlord gets to keep the down payment no matter what happens. Usually, a person putting down a significant amount is a good tenant in spite of having bad credit. Having money invested in the property gives the tenant/buyer a strong incentive to take better care of the property than if renting or leasing.

Another advantage for the tenant/buyer is the ability to lock in a home purchase price for a sales transaction completed far in the future.

Typical RTO deals last for two years or longer, with the average being five years. This gives the tenant/buyer time to improve credit records and to qualify for the financing needed to consummate the home purchase.

The Cons Of Rent-To-Own Deals

If property values go down in the area where the home is, the value of the RTO deal can suffer. A few years later, the home may not be worth the price for buying it that is in the RTO agreement.

If any life circumstances change, the tenant/buyer may lose the down payment by having to forgo purchasing the property. If the tenant/buyer does not consummate the purchase they lose the down payment plus any portion of the rent applied to reduce the purchase price.

The tenant/buyer in the RTO transaction typically has to take on full responsibility for the home after they occupy it. This is an advantage for the seller/landlord but a disadvantage for the tenant/buyer who becomes responsible for all the maintenance, repairs, and upkeep of the property.

Summary

Rent-to-own deals are quite popular and effective for both sides in the deal under certain circumstances. Certainly for those that have a poor credit history an RTO deal is a convenient way to reduce the waste of paying rent and gain some potentially valuable home ownership instead.

Please consider meeting with your trusted real estate and mortgage professionals to discuss your options before entering into a risky financial agreement.

Real Estate Tagged: Home Purchase, Real Estate, Rent To Own

Cory Thompson

CONTACT INFO


Mobile 832.347.1855

Office 281.218.0505

NMLS ID 225056
Legend Home Lending

Connect with Me

Let’s Keep In Touch!

  • This field is for validation purposes and should be left unchanged.

Recent Posts

  • Common Mistakes The Experienced Homebuyers Tend To Make
  • An Overview Of Mortgage Points On Home Loans
  • Case-Shiller Reports Home Prices Rise at Fastest Pace in 7 Years
  • Three Tips For Reducing Your Closing Costs If You’re Looking Forward To Buying A Home In The Spring
Equal housing
| © 2017 Legend Lending Corporation NMLS 229421 | Texas Recovery Fund Notice

Archives

Our Location

Legend Home Lending
17047 El Camino Real Ste 150
Houston, TX 77058

Copyright © 2021 Cory Thompson  ·  All rights reserved   ·   Log In