If you are either short of a down payment or have credit challenges to overcome (and if you are prepared to overcome them), a rent-to-own property may be a good – even great – way to move toward home ownership.
Typically, a rent-to-own agreement, also known as a land contract, is an arrangement between a property owner/landlord and a tenant.
The expectation is that at some point the tenant will purchase the property for a fixed price on a predetermined date, providing, of course, that he or she can become qualified to do so.
That may mean repairing or rebuilding that credit over the period you are renting your potential home.
To safeguard the property owner, most contracts require a nonrefundable deposit in the event that you are unable to become qualified to purchase the property.
If you are seriously thinking about entering into one of these agreements – and don’t want to lose your deposit – your mortgage professional should be part of the process from the very beginning. He or she will pull your credit then prepare a strategy to get you where you need to be in the allotted time frame.
This time frame is key: credit repair can take one or more months, and it’s extremely important that you realize this and set your expectations appropriately.
You probably won’t be using a real estate agent in this process, so it’s vital you have a real estate attorney to review your contract and answer questions that come up during the process.