After I became a Realtor I found that a third of my clients were originally looking for a rent to own property. For some reason this myth that if you have so-so credit and little savings, a rent to own property could be your solution. I soon found that couldn't be farther from the truth!
1. Rent to Own is Cheaper than Buying a Home with a Loan. Most rent to own properties are going to require that you put a minimum of 20% down. If the house is $130,000, 20% would be $26,000. Because you are not getting a loan, where the lender is offering the sellers a guarantee that you can afford their house, they ask you for more money upfront so that they feel secure that after the first year is up you will actually be able to purchase their home. If you have at least a 620 credit score, and make under $62,500 annually, then you can qualify for a MFA loan which requires only $500 down payment. If you make more than $62,500 and have a credit score of 620 then you can qualify for an FHA loan that requires only 3.5% down. ($4,550 instead of $26,000 for the same price of house) See you're saving money already.
*Not to mention some rent to own contracts have you pay a large balloon payment after the first year when the deed is transferred in your name even after you've been paying them monthly.
2. You need perfect credit to Qualify for a Home Loan. (See above, 620 is not perfect, but it will get you preapproved for a home loan). Also some lenders will even grant loans with 580 credit score. Message me and ask me which ones. Even if you've had a bankruptcy or a foreclosure you can still qualify for a home loan.
3. "I'm spending so much money on rent I would rather be investing in something that will be mine." Purchasing a home allows you to do that. Rent to own is not the only way to purchase a home.
4. A mortgage is always more expensive than rent. Most of the time your mortgage ends up being cheaper than rent. Especially if you get a good interest rate, which are around 4% right now. Also 5% percent down conventional loans allow you to avoid PMI which can make your monthly payments even lower.
5. I don't know how to go about buying a home. First find a Realtor, you don't have to pay us until you close, no matter how many houses we show you, we don't make a dime until we've found your dream house. Also a good Realtor can get you in touch with a lender before you even find a house. That way you know exactly how much you can afford with your income and which type of loan would be best for you. There is nothing worse than found your ideal home only to be told that you can't buy because of financing issues.
*Credit score not a 620 yet, don't worry there are easy steps to get you there.
Contact me if you're looking for a house and rent to own suddenly sounds like a raw deal.
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