Don’t do it! There are many reasons why I recommend seller financing over rent to own in Texas.
If a buyer does not have adequate funds for a down payment and has poor enough credit or income to keep a lender from offering them a loan, I don’t think they should be purchasing a home. If they do have the income or the down payment, regardless of credit, then seller financing is a great option for them. I don’t believe a landlord should offer to sell to someone that has poor credit, limited down payment, and unsteady employment. That sounds like trouble to me – so I would never recommend this to one of my landlords or sellers.
If a tenant needs more time to get adequate financing, then I feel they should purcahse a home at a later date – that is my opinion. What if they are never able to get their credit in better shape and now the seller/landlord has agreed to sell their house to this renter?
It doesn’t help that ForSaleByOwner.com is now offering a lease to own advanced search option. Other states that have different real estate laws, may be more suitable for rent to own tenants than Texas.
All rent to own contracts should be written up by attorneys or atleast reviewed by a real estate attorney. The contract has to have a lease component and a sale component. They are legal in all the United States, but I do not recommend doing it.
What if the seller is entering foreclosure? Would you the tenant buyer know it? If they got foreclosed on, you’d lose all your equity and get booted out of the house. There has also been fraud associated with rent to own transcations.
Now for more down side to buyers – what if prices go down and you are locked into purchasing the home for more than it’s worth. What if interest rates go way up? If you don’t buy the home, then you lose all your money that was supposed to be going to the down payment. Some contracts say that if buyers are late on a payment, that payment cannot count towards the down payment.
Realtors don’t have promulgated forms for rent to own options, so you have to pay an attorney to write it up. Do you know everything you need to put in that contract to protect you and your property? Neither do I. That’s why I encourage rent to own buyers to instead use the option of Seller Financing. Seller Financing can be completed on Realtor promulgated forms and all title company attorneys can write these up easily. I believe seller financing is a better option for both sellers and buyers/renters. It’s not just about the forms. The forms are there because seller financing is more simplistic. The buyer takes possession right away. They don’t have to wait to own the property.
If you want to rent to own a home, I recommend you set up seller financing if you are in the state of Texas. Call me if you want more details. I can explain better over the phone – 281.288.3500. Let me know if you want the buyer or seller’s point of view!