twina49

My son and his fiancee are looking at the possibility of buying a house through a "rent-to-own" option. The current owners are a professional couple who have owned the house for more than 10 years. They are asking for a 5% down payment, with the person paying rent for a year and at the end of the year deciding whether or not they want to buy the house. If they buy, the rent and down payment will go toward the purchase price. If they decide they don't want the house, they'll lose the 5% down. The house is nice - four bedrooms, 2 1/2 acres, master bedroom with jacuzzi bath, two-car garage. Has anyone purchased a house this way and/or have any opinions about the idea?

saps

If your son and his fiancee can afford to "throw away" 5% of the purchase price of a house if they don't like it then I think they should just buy a home that they do want right up front and skip the whole rental ploy.

fmpden

This is a travel question?? Should probably find a real estate site for the question. There are no considerations than you have identified. Property taxes, insurance, price of the property, future mortgage. One way to look at it is to total up the total costs of living there for one year (downpayment, rent, etc.,) and divided by 12. If that is a reasonable rent or even a small premium over the rent, and they could afford to walk away at the end of the year, it is deal with min risk.

GoTravel

Do they love the house? Or are they more into the deal than the house?

If they have so so credit and have trouble saving money, this may be a good plan for them only if this is the house they want.

One heads up, I read an article that almost 7% of all home purchases were going into forclosure so the market in their neighborhood might be better in a year or so.

Barbara

If they agree on a purchase price now, there's a fair chance that the property will be valued at less in a year. IMO, this is not the best time to get into a deal like that.

twina49

Oops! No, it's not a travel question. I meant to put this on the Lounge. Mea culpa!

toedtoes

I've known and heard of instances where the current owners have "changed their minds" about the rent-to-own during the first year and the buyers have gotten screwed. In one case, after 5 months of living there, the current owner, deciding that she could sell it outright for more money, reneged on the agreement and gave the buyer 30 days to move out.

If they are able to buy a house straight out, I would recommend they do that instead.

If they can't buy a home the "regular" way, then I would make sure an attorney reviews all the paperwork and agreements to protect them. Often in these settings, there is no "contract" and the deal goes bad.

Rachel

I would highly recommend your son seek competent legal and financial counsel before entering such a venture. I speak from 20+ years of legal experience, much in the world of residential real estate. Several issues, and they may all vary by state law (a good reason not to seek advise on a board where you will get answers about everyones state)---buying as unmarried people, w/o the benefit of matrimonial laws (what happens if they break up), pay a year's rent and not know if the sellers have good title? how will prospective lenders look at the "rent" on a mortgage application. They may not accept it as a down payment and require one. These are just a few issues. I did travel to Niagara Falls this morning

lcuy

One other thing...If they do this, they should make arrangements to monitor that the current owners continuie to pay the mortgage and taxes. If not, the house could be forclosed upon and there will be no house to buy at the end of the year.

They should might consider having the 5% put in an escrow account as well, to make sure there are no problems getting it back if the owners are unable to sell at the end. I Strongly advise them to get a good RE lawyer to draw up the agreement. Lease to owns are ripe with potential problems.

twina49

You all have some very good points. Thanks! And yes, one of the first stops would be to see an attorney about the arrangement. The reason I posted it on this board was to see if anyone in the group has ever purchased a house this way. I remember my parents talking about people buying a house using "Articles of Agreement," which is essentially a rent-to-own situation. The house is actually exactly what they are looking for, so the suggestion that they just go ahead and buy it is a very good one. Thanks to everyone for taking time away from their travel thoughts to answer a housing question!