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Rent-to-own home purchase, anyone with experience?

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gealach

MyPTSD Pro
As a renter
I'm paying more than a monthly mortgage cost (plus annual property tax, plus profit). Rents keep going up (there's no rent control here, so the cost can more than double or triple annually, with no max/upper limits to the charge), there's increasingly limited rental availability, the house can be sold with minimal notice, renovictions occur with even less notice, and moving every year or two when the rent becomes unmanageable... it's all just too unstable, and frankly I'm sick of being a 25 year investor in other peoples properties, with absolutely nothing to show for it for myself. I need to get into home ownership, for stability, and to invest in myself in a financially meaningful way.

I have a small down payment saved, but what would have been a decent dollar amount in years past (approaching 15% - 20%), doesn't even make 5% of the disgustingly overinflated current house prices. I'm constantly chasing (and never catching up with) that 20% down payment. Which is my major issue with qualifying for a mortgage. (it's estimated that those wanting to enter the market now, will have to save for 11 - 17 years for a 20% d/p based on the current market)

I spent a long time (years long) on an unpaid LOA for ptsd and other injuries, so I have several years with no income, and was down to my last $5. That income gap is my second issue with qualifying for a mortgage. I did go back to school for 1.5 yrs during that gap (unplanned,) so I can explain some of that gap, but it is still an income gap where I relied exclusively on my dwindling savings.

I went back to work full-time last May/June, and since then managed to save just over 20% of my net income (2021), plus pay off $2000+ in LOA-induced debts, about $3000 in tuition debt, start auto payments for pension arrears, and pay rent/bills/gas/food/extras. But all of that skews my 35% housing/45% cost of living stats, which is my third issue with qualifying for a mortgage. <------- credit where credit is due though, until I put ^^^ that in writing, I didn't realize that I've done so much, financially, in just 11.5 months.... from $5 left and would have been starving and months into living in my jeep if mom hadn't saved me... to savings + debt payments accounting for about 31% - 33% of my net income (2021), which wasn't even a full year of income... damn, super saver mode activated!!!!

That was longer than I intended. Long story short, I am considering (*using that term loosely at this point in time) exploring the rent-to-own path to home ownership, but no earlier than next spring when my current rental is up for renewal. Anyone have any experience with this format? Or reliably know of someone's experience? positive/negative/meh it was okay/not as expected? Is it such a bad idea, that I should run screaming and never think of it again? Or is it a manageable risk?
 
When you are purchasing a home with the seller providing the financing, the most important thing is the contract and the details there. A formal land contract gives protection to the buyer, similar to a standard mortgage. Any way, the buyer should always have their own attorney review the contract to make sure they are protected.
 
I'm not sure how it works in other areas, but here the mortgage in a rent-to-own would still be done the same way as any other, it's just that you rent the property long-term first (while saving the d/p), before purchasing it. So it's typically not the seller providing the financing... I'm not even sure how that would work. It doesn't sound like something that would be an acceptable risk to me, like a conflict of interest with them both selling & financing.... good way to maybe get F'd over.

In the rent-to-own here, you sign 2 agreements:
- the rental agreement (except that it's for a number of years, rather than just a year, with the normal 1 month deposit) <---- pro, more stable than annual renting, and you can reno; con, you can't just walk away, and you're responsible for repairs not the landlord
- the intent to purchase (becomes ''active'' after the years-long lease expires; pay an up-front d/p, plus extra monthly rate - the d/p and extra payments total are yours at the end of the lease, and becomes your total d/p when you then apply for a traditional mortgage with the assumption that you've reached 20%) <----- there's the risk! if you don't follow through with the purchase at the end of the lease, you lose some or potentially all of that money


There are lawyers here that specifically deal with rent-to-own property agreements, and that would be a must for me, absolutely. I'm sure the RTO companies have their own lawyers, but I want to be sure that *I* am the one being represented and protected, so I'll pay for my own independent legal rep. And my own home inspection, etc.
 
So it's typically not the seller providing the financing... I'm not even sure how that would work
The first place I bought was purchased on what, here, is called a "contract for deed". We agreed on a price, I made a down payment to the seller, and then made monthly payments to the seller. The way it's usually set up (here) in an agreed upon time (usually 5 years) you owe a balloon payment to the seller of the rest of the amount owed. The idea is, by then, you can get a conventional mortgage. You can also agree to keep making payments to the original seller if you want. There are some risks on both sides, but it can work for situations where you can't qualify for a conventional mortgage. That's a little different than rent to own, I think. With this system, the seller gets the interest payments but assumes the risk of the loan. If the buyer defaults, the seller keeps the money they've been paid as well as any improvements the buyer made. On the other hand, if the buyer defaults after trashing the place, the seller keeps the money but gets back a place that's been trashed.

In my case, there were some complications because the sellers lied about a few things and the company who handled the closing either missed some things or overlooked them. Worked out in the end, but, after I hired a lawyer, he said, "You think the closing company is working for YOU because you're paying them. Actually, they're not. Their only job is to facilitate the transaction." When I got a conventional mortgage, I hired a lawyer to handle the closing. Did the same thing when I sold that place and when I bought the place I'm at now. Hiring your own lawyer is my biggest piece of advice, for sure. I think any system can work, if the people involved are honest and everyone knows what's what.

I get what you're saying about the reasons to buy rather than rent. It especially seems that way at a time when prices are rising fast. I actually bought that first place at the bottom of the last real estate crash & this one before prices started to escalate. So far, the market goes down after it goes up. I suppose there's always a chance that will change, but so far it's been true. So I guess, with things as crazy as they are right now, I'd say to be sure of what the place is worth TO YOU and be sure you can lock in an acceptable price. You really want to avoid being in a situation, later, where you have to sell for less than you paid.
 
I don't know anything about RTO housing, I'm automatically very wary of anything that's RTO. In my area there are quite a few programs that help folks put down smaller amounts and still keep their mortgages manageable. There are also neighborhoods in my city where buyers qualify for most of their mortgage money back on their taxes. Sorry if this isn't that helpful but I'd look for specific programs that could help with your down payment, mortgage, or taxes post-purchase if you don't want to go the RTO route.
 
I have experience with a lease-to-own housing contract. The sale didn't go through but her and I are still friends. The terms were agreeable, next step would have been to hire a lawyer for due diligence.

I also know someone who currently has a land contract with someone. Nice property, affordable, both parties happy.
 
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