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Anyone ever heard of renting to own? I’m kinda in a pickle. I’m 34 with a beautiful wife and 2yo daughter. My wife and I have so so credit. Recently my daughter’s babysitter who is just awesome is getting married and moving away. Her parents are retired, built a second home down the street and are wanting to downsize in the new home and sell their larger home. So the sitters dad approaches me and says, “Brian, you should buy our home.” Haha I laugh and say “I’d love to but I’m in no position to be buying a home at the moment. Thanks tho!” After a couple days of kinda joking around about it he finally comes to me again and says, “look, I think your family would be a great in this home. We love your daughter and you guys, and think you should buy this home.” Then he says, “we can work whatever out like a rent to own deal.” So I haven’t had a full on sit down with him on how this rent to own deal would play out. We’ve only walked through the house and chatted about the idea. Anywho, the house is 4 bedroom place, garage, built in the 70’s on a lake 10 miles from my work. It’s beautiful. And very well taken care of. I guess I need to have a sit down and get more info, but prices in California are insane. I’ve worked construction my whole life but now I recently just got into a water district as an operator. The house is on the market for $650k. Is renting to own something to stay away from? They are close family friends with a good track record. Totally solid people. Would I be missing out on a great opportunity if I said no? should I just keep throwing my money away where were renting at now and wait for the market to drop eventually? Thanks!
 

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1. Only viable if the current owner has no outstanding loan (first mortgage or second mortgage)
2. The rent to own purchase agreement must go through a title company as in a normal sale and documented on county records.

There's more but those are the biggies.
 
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The way I take it, and this could be entirely wrong. Lets say he has a mortgage of $300000 so he has $350000 equity. His current payment may be $1800/mo So does he just let you pay his current mortgage payment and then when that is paid up what about his equity? I don't have an answer unless he likes you guys a whole lot and is going to give away some or all of his equity to you?
I have heard of "rent to own" but I'm clueless on any details.
 

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If the house is worth $650000 today will they let you pay that amount over 30 years without interest? $650000 paid over 30 years without interest is $1800 per month
I can see parents doing something but friends?

I just don't see how this could work. I think you need to get on the ball and save up a large down payment and find something you can afford. Not easy to do.
 

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Though it might not be necessary, depending on arrangements, you might want to consider the cost of PMI. To avoid this additional cost, it's my understanding, that a 20% down payment is needed. Based on your 650 figure, this would be a $130,000.00. Quite a chunk of change, plus I don't know how much closing cost would be. Best wishes with what you decide, Carmine.
 

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Anyone ever heard of renting to own? I’m kinda in a pickle. I’m 34 with a beautiful wife and 2yo daughter. My wife and I have so so credit. Recently my daughter’s babysitter who is just awesome is getting married and moving away. Her parents are retired, built a second home down the street and are wanting to downsize in the new home and sell their larger home. So the sitters dad approaches me and says, “Brian, you should buy our home.” Haha I laugh and say “I’d love to but I’m in no position to be buying a home at the moment. Thanks tho!” After a couple days of kinda joking around about it he finally comes to me again and says, “look, I think your family would be a great in this home. We love your daughter and you guys, and think you should buy this home.” Then he says, “we can work whatever out like a rent to own deal.” So I haven’t had a full on sit down with him on how this rent to own deal would play out. We’ve only walked through the house and chatted about the idea. Anywho, the house is 4 bedroom place, garage, built in the 70’s on a lake 10 miles from my work. It’s beautiful. And very well taken care of. I guess I need to have a sit down and get more info, but prices in California are insane. I’ve worked construction my whole life but now I recently just got into a water district as an operator. The house is on the market for $650k. Is renting to own something to stay away from? They are close family friends with a good track record. Totally solid people. Would I be missing out on a great opportunity if I said no? should I just keep throwing my money away where were renting at now and wait for the market to drop eventually? Thanks!
It sounds a lot like buying a house "on contract", from the previous owner. In my mind, yes they would still own the title to the house, but that isn't much different than the mortgage company holding the title to your home. Find out the details of exactly what the home owner is offering and how it would work. Then seek an attorney who is up on this kind of thing. In my mind you would want to be in a situation in which any amount of your payment that is deemed interest is deductible on your tax return. Likewise property taxes. Make sure you get all tax advantages of a typical home owner.

Rent to own, in most situations costs more in the long run.
 

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Also keep in mind that many times the reason people default and lose their home to the bank is that they are in over their heads with a high payment. Try to buy a house that you can still afford if one of you loses your job temporarily. Qualifying for a loan and being able to actually keep up with those payments in a time of crisis are usually two different things.
 

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I think it may be a great idea for a couple starting out....BUT...get a real estate lawyer and make it legal, and both have to agree to the terms. You are taking a big leap, and it is he who is taking some risk. CAN YOU MAKE THE MONTHLY RENT PAYMENT on time for years?? If you change your mind or default after a few years you lose what you already paid (same as rent). When making a large purchase, your so so credit may bite you in the a$$.
 

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I think it may be a great idea for a couple starting out....BUT...get a real estate lawyer and make it legal, and both have to agree to the terms. You are taking a big leap, and it is he who is taking some risk. CAN YOU MAKE THE MONTHLY RENT PAYMENT on time for years?? If you change your mind or default after a few years you lose what you already paid (same as rent). When making a large purchase, your so so credit may bite you in the a$$.

Also after some years you want to move on, you just lost everything you spent the previous years. You need to talk to a real estate atty
 

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It all depends on the details.

As others have already said - you need a good lawyer who does lots of real estate stuff. This will be tricky. It could be the lucky break you need, or you could get screwed - it all depends on the details.

The lawyer will need to check for outstanding liens against the property (mortgage and otherwise). We were trying to help my mother-in-law buy a condo about 10 years ago. Seller wanted about $150K for it. But, he had a couple of businesses and had been sued, and there was over $1 million (you read that right) in liens against the property. Our lawyer found out about "that little detail they forgot to mention" while doing the title search. Oh well...

Consider the monthly payment versus renting something similar versus buying something similar.

How much of your monthly payment will be going against buying it? Do you get that money back if you move before completing the purchase?

Would this couple like to sell you the property outright and then be your mortgage lender? What are the terms of said loan? Could you get a comparable loan from a bank?

In a few years, a good track record with renting from them will improve your credit score. Will they sell it to you then? At what price?

Most of us here are much older than you, so the challenge of getting into your first house may be a distant memory. With the current real estate market in many places, it's doubly tough right now. My wife and I have been looking at houses, seeing "are you kidding me?" prices, and the doggoned thing goes under contract in a few days anyway for more than asking price. It's tough right now...

So - Do. Your. Homework!
 

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Renting to own sometimes works out. Sometimes its a loosing proposition from the get go. Usually you rent for a period of time, say 5 years. The owner agrees to attribute a certain amount of your monthly payment to the eventual purchase price. You settle on a purchase price at the time of the rent to own agreement. In five years you figure out how much of your rent can be applied against the purchase price and how much of a mortgage you will need to obtain to complete the purchase. You don't purchase, all of your payments are rent, nothing comes back to you.

Now the bigger questions is, if you do buy the house (and yes I know its your dream house and all that), will you be house poor? Will you be socking all your money towards paying your mortgage hoping that the property will gain value better then what the market might grow cash at? Will you be paying interest on a giant mortgage that could otherwise be funding a 401K or an educational account for your children. Is it so expensive you have to forgo vacations, an occasional dinner out, life? Lots of people are in that situation. Its all in the balance. Modest means, modest life, sometimes ends up being way better and leaves you with way more options in your life then to be tied down to a mortgage. Just something to consider.
 

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Another way to do is if they sell it to you, and carry the loan. Not really different than a normal bank agreement. A title company will have to be involved, and the papers will be in your name, and the seller will be like the bank.

I did it with my first house, never faulted on payments to the seller, and it worked out wonderful for me because the seller only demanded a small down. We had to work out a reasonable interest rate though. He wanted a couple points higher than going bank rate. We came to an agreement though.

If I was you I’d jump on something like that like flies on stink! That property sounds like a once in a lifetime chance.
 

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Seller carrying back money is an excellant way to go but the seller normally wants some money upfront, pretty much the same as a down payment
Normal situation would be say give seller $80,000 today and he carries the rest for a given time,
 

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The biggest problem with most rent-to-own agreements is, that you build absolutely not one penny of equity in the home until it is paid for! It is pretty much the same as a mortgage on a house where it is pretty simple to figure how much the seller is making on the sale of the house (the equivalent of principal and interest), but the title stays with the seller until the house is paid for. Miss one payment 20 years into the deal, and the seller can come and take the house back, and you get nothing! Seller finance is entirely different. In that case the seller is acting as the mortgage lender, and he has to follow all the rules that apply to lenders. The title is in the buyer's name, and he builds equity in the house as he pays it off. If he can not make the payments as some point, he can always sell the house and he gets to keep whatever equity has been generated, or the lender forecloses on the house and has to pay the buyer the difference between the current value of the house and what principal was left to be paid. Be very careful with rent-to-own deals. They are usually just unscrupulous sellers looking to take advantage of a buyer.
 

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Seller carrying back money is an excellant way to go but the seller normally wants some money upfront, pretty much the same as a down payment
Normal situation would be say give seller $80,000 today and he carries the rest for a given time,
In my case the seller only wanted 5k down. Really nice guy that wanted me to have the place. He owned 3 other properties also.

Forgot to say but the rent to own thing costs more in the long run because only part of the payment goes towards the house, the rest is just regular rent.
 

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I say entertain the idea and look further into it. Sounds to me they want to help a young couple with a young child. Me and my wife went looking for houses in the Denver area and said nah, we’ll wait until the market comes down.....that never happened lol. Like everyone else has said....do your homework and get everything in writing/contract. It is big decision. Is this a house you would want to live in for the rest of your life? If not, might be a good choice to try and find/buy one on your own. It was difficult for us to get into our first house but we made it happen. You can do it too if you really want it. Jmo of course.
 

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Discussion Starter · #19 ·
Thank you ALL for the wonderful input! Wow lots to think about. Lots of homework. Yes it’s a house I could see us staying in forever no doubt. It’s a beautiful area and neighborhood and it’s close to work. Going to go over the pros and cons with the wife this evening. Then hopefully sit down with the owner this week and see what he thinks. They are super nice people and I don’t see them being the type that are trying to take advantage of us or anyone. So yea I think I’d be pretty bummed down the road if the house becomes a air B&B and I didn’t explore the options. Thank you all again! 🤙🏼🙏🏼
 
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