Step 1: Decide what kind of home you need and can afford
Step 2: Learn about rent to own and owner financing
Step 3: Find a home
Step 4: Apply and negotiate purchase
Step 5: Improve credit and get approved for a mortgage
Narrow your home search
Before you start looking for a rent to own or owner financed home, you should decide what kind of home you want and the best location. What is the best city or part of town for you based on your job, family, friends, church and lifestyle? How many bedrooms and bathrooms do you need? Will your family grow or decrease in size in the near future? Do you need a garage or basement for storage?
Maximum monthly payment
After you have a good idea of the type of home and location, decide how much home you can afford. The biggest mistake by far that people make is thinking they can afford a home that they really can't. Take the time to carefully consider your monthly budget taking into account your actual income and actual expenses. A general guideline is to take your monthly income and divide it by 3.5. This will give you a maximum monthly house payment or rent amount. For example, if your monthly income is $3,000 then your payment or rent shouldn't be greater than $857 per month (3,000 / 3.5). After you have this payment amount, subtract it and your other total living expenses from your monthly income. After you do this you should have, at the very minimum, a couple hundred dollars. This left over amount is what should be saved for unexpected expenses, retirement or other major purchases.
How much for a down payment
Besides determining your maximum monthly payment, you should decide how much you can afford for a down payment. Be sure you don't use all your savings and take into account moving expenses, loss of pay from a job transfer, switching utilities and other unexpected expenses. Usually, for an owner financed or rent to own purchase, 1% to 5% will be needed for a down payment.
This will be one of the most important steps to make sure you make a safe decision to rent to own or owner finance a home. Many horror stories happen because of uninformed or uneducated decisions. There are a couple different types of rent to own or owner financing options.
Rent to own basics
Renting to own a home is the most commonly heard of type and can also be called lease option, lease to own or lease purchase. In a rent to own purchase, the buyer signs a lease or rental agreement and an option agreement. The option agreement is what allow the buyer to purchase the home. In the option agreement, a purchase price and deadline to purchase the home by is agreed upon. The option fee, which is a non-refundable fee, is also set and is normally 1 to 5% of the purchase price. The rent and rent credit is the last important part of renting to own. Rent credit is the portion of the rent that gets put towards the purchase price. The rent and rent credit is also non-refundable. Learn more about how rent to own works.
Owner financing basics
Owner financing is the second most popular option and usually the best option for buyers. Owner financing is normally done with a contract for deed or land contract. Owner financing is more like a traditional mortgage because there is a purchase price, interest rate, down payment and loan length. It is different from a traditional mortgage because the deed or title to the home is not transferred to the buyer until they make all the payments, pay it off or get their own mortgage. The biggest advantage of owner financing over a rent to own purchase is that there is normally not a time limit for getting your own mortgage like with a rent to own purchase.
Finding the right rent to own or owner financed home can take time and work. The key is not to get discouraged. Besides looking for rent to own homes or owner financed homes on BubbaFinder.com, the best places to find a home are the classified section of the local newspaper, craigslist.com, for sale by owner signs and homes for rent. Even if a home for sale by owner or for rent is not advertised as a rent to own or owner financed option, many times, the owner will consider it.
Finding a home can be easier by following step 1 and narrowing your search. During this search process, check the condition of the home and make sure there is no obvious damage and everything is in good working condition. A home inspection can always be done if you are unsure.
After you find a home that you like and the owner is willing to owner financing or rent to own it to you, most owners will require you to submit a basic application to them. Information that is usually asked for includes contact info, employment info and landlord references. When filling out the application be sure to include as much accurate information as possible. If you schedule an appointment to see the home or meet the owner make sure you are on time to show your dependability. Many people that apply for owner financed and rent to own homes do so because of less than perfect credit. Most owners don't rely too heavily on credit or credit scores. The most important thing is a reliable income that is at least 3.5 times the monthly payment like described above and references. Any other information that can show your reliability, ability to pay and take care of the property should be given to the owner to improve chances of being approved.
Owner might be unwilling to negotiate on the price, payment, down payment very much because they are offering an easy way to work towards owning a home and the ease of being approved, even with bad credit. Even so, it is always a good idea to ask.
Talk to a mortgage broker or lender and see how close you are to qualifying for a traditional mortgage. Here are a couple questions to ask. How long do you think it will be before I could qualify? What purchase price do you think I could qualify for? What would I need for a down payment and closing fees? What should I do to improve my credit?
Take what information the lender can give you and start to build your credit. Besides making sure you pay all your bills on time, here are a few tips to start to improve your credit.
Contact your creditors as soon as you know you will have a problem paying bills on time. Try to work out a payment arrangement and negotiate with them to keep at least a portion of the late notations off of your credit reports.
If your situation is serious, see a legitimate, non profit credit counselor. Avoid the scam artists who promise a quick reversal of your credit problems.