Tuesday, April 26, 2011

Rent To Own

A rent-to-own can be beneficial to some people and it can also be a complete disaster for others. If you are considering a RTO you really need to do some research and if you are not aware of what you are supposed to be researching I will give you a few ideas. Also it can be pretty hard to properly qualify for a RTO, although some people holding these properties will tell you no credit needed, income doesn’t matter, down payment not required, whatever; in these situations you are almost guaranteed to lose your money.

What is a Rent To Own?

A RTO is basically a purchase agreement. This means you agree to buy the house at a certain date. It is a contract. If you do not fulfill the requirements of the contract you risk losing all your deposit and your purchase credits.

Who is a RTO for?

The majority of people who should only be considering a RTO are people with money and income, with bad credit that is fixable within two years. Possibly you may have a large insurance settlement coming within two years.

How does a RTO work?

Generally you put a 5% deposit down and agree to buy the home at a pre-determined price at the end of the RTO term. You will pay monthly rent plus an extra amount called purchase credits that will go towards closing costs and your down payment.

Do I qualify for a RTO?

If you are considering a RTO chances are you credit is not the prettiest. You need to see your credit rating and consult with a professional to see if it can be fixed within the RTO term. Also will you qualify for a mortgage at the pre-determined price at the end of the term? Take this into consideration; you make 40k a year, the RTO property is 200k and you agree to buy it in two years at $210k with 5% down, most likely your credit score is under 680. You will not qualify! You will lose your 5%! You will lose all your purchase credits! You will be on the street!!!

Most investors who offer RTO’s are stand up people and really want to help you. It makes them feel good that they are helping someone. They will have you sit down with a mortgage broker before you sign any papers. There are a few who want to see you fail so they can say next and get another sucker into their home and take another 5% and charge them an inflated rent with so called purchase credits. Only 35% of RTO’s actually end up in a purchase. Why? Mostly, the others were not properly qualified.

I am a fan of the RTO program but only if it works for both the purchaser and the investor. We have investors available that you can trust. Don’t be a sucker, find out where you stand and what you’re best options are.

If you are a Realtor with a client who you feel the RTO program will work with, you will be the agent who handles the purchase of the property for the investor.

Ron Miller
Butler Mortgages

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