Many Connecticut first time buyers are interested in "Rent to Own" or even "Owner Finance" properties. For first time buyers it is important to have experience professional real estate agents and attorneys on your team when looking for property.
Looking to buy in lower Fairfield County, Ct contact David Popoff at William Pitt Sotheby's in Darien.
Eric Hempler from Minnesota explains the basic principals of these arrangements below with links to further detailed articles.
A Contract for Deed or Rent to Own can be a good option for a buyer that has credit issues, but going this route doesn’t solve the other issue a buyer may have and that’s their credit. If a buyer goes this route and never works on their credit then the money they’ve paid towards a Contract for Deed or Rent to Own can be loss forever, which could be tens of thousands of dollars.
I’ll explain a Contract for Deed and Rent to Own in their simplest form.
Contract for Deed
A Buyer pays a Seller a down payment and then a monthly amount plus interest. Sometimes this interest rate is higher than permanent financing and other times it isn’t. Once terms are agreed upon a down payment of about 10% is made. These contracts usually last about two years and at that the end of the two years the Buyer would get permanent financing.
Rent to Own
In a rent to own situation the buyer agrees to rent the property for a period of time and part of the rent is set aside for the down payment. When the contract reaches the end of it’s term the money set aside is used as the down payment IF the buyer can get permanent financing.
The Risks to of Rent Own and Contract for Deed
- The Seller could decide not to pay the mortgage any more and the Buyer would be out their down payment plus monthly payments they’ve made. There’s the potential risk of losing tens of thousands of dollars.
- The Buyer can’t get financing after the term of the contract. If the Buyer hasn’t worked on their credit during the rent to own or contract for deed period they again risk losing thousands of dollars if they didn’t also work on their credit during this time.
The bottom line is if you’re looking to buy a home you HAVE to work on your credit at some point. With the two risks I mentioned I would strongly recommend renting something that’s inexpensive since it’s only temporary, rebuild your credit and put money aside for permanent financing on a home.
- How Does An Installment Sale Land Contract (Contract for Deed) Work (30.1)
- How does rent to own work? (18.3)
- To Buy or Rent (14.9)
- I want to use the listing agent because they’ll get me a better deal (6)
- How to Buy a Home with Bad Credit (5.8)
Join the Conversation on Facebook | Twitter | Google+
More than 1,100 Homes Sold in 2012
Eric Hempler is a Minnesota Realtor with the Agent Referral Network and works in conjunction with RE/MAX Advantage Plus on the Minnesota Real Estate Team, #1 Real Estate Team in Minnesota since 2006.
Eric Hempler can be reached at 651-491-3393 or EricH@MNRealEstateTeam.com
Newsletter Sign Up - Click Here