Rent-to-own programs in Houston TX: The Complete Guide
Are you looking for a rent-to-own program in Houston? Well, if you are struggling with credit, your answer will probably be a resounding yes. This financing method is explored by a lot of buyers with bruised credit records. Rent-to-own programs are very popular among them because it enables them to buy a home with bad credit.
Rent-to-own, also known as lease option or lease purchase, is a financing method which allows you to rent a home, live in it for a few years and then buy it before the lease expires.
While it is considered a great alternative to a conventional mortgage, there are better programs that allow you to own the home immediately. In a rent-to-own program, you pay rent for a specific number of years before you buy the home. As we will explain in detail in this guide, you waste money on rents for a long time before eventually owning your rent-to-own home.
In some programs, you don’t have to wait to get the title of the property transferred in your name. These programs include owner financing. You can buy any home you want with owner financing in Houston. We will discuss all types of rent-to-own programs available in Houston; however before reading further, you can explore Houston home listings below to find your dream home. We will help you buy it with no credit check or income verification:
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Types of rent-to-own programs
Like in most alternative financing methods, rent-to-own contracts are customizable. It means that the terms you agree to in a rent-to-own arrangement can be negotiated. While it sounds like a great thing, it generally works in the favor of the landlord. You and the landlord can negotiate:
- The lease period – it’s the number of years you live in the property as a tenant with an option to buy it before the lease expires.
- Consequences of default. If you fail to obtain a mortgage at the end of the lease period, the landlord may be able to keep all your rental payments, plus option money (which works as a security deposit) that you put up at the start of the lease period.
- The lease period is not fixed in some rent-to-own programs. You can buy the home whenever you can obtain a mortgage. For example you can buy the home after one year of living in it as a tenant or after three years. However, the landlord will add a pre-specified annual increase in value to the purchase price. You have to pay the increased value even if the market crashes bringing down home values.
- In some programs, rent is increased on an annual basis. Most landlords tent to increase the rent by 5-6 percent annually. In a rent-to-own agreement, you must agree to pay the increased rent even if rent for other comparable properties in your neighborhood stays the same.
- In most types of rent-to-own programs, the purchase price is locked in when you sign the contract. However, this is not set in stone and you may have to pay the future appraised value of the house.
- In most rent-to-own programs in Houston, you will pay option money at the time of signing the lease contract. This option is applied towards your down payment if you get through the deal, but if you back out at the end of the lease period, the landlord will keep it. The option money could be up to 3-4 percent of the purchase price.
- In some programs, you may be asked to pay a fixed amount of monthly installment (rent credit) in addition to your rental payments. This is also applied towards your down payment or purchase price. It can be up to 15 percent of the monthly rent.
It’s obvious that unlike a traditional mortgage, rent-to-own programs don’t follow a specific set of underwriting standards. You and the landlord can negotiate the terms.
It is important to go through all the terms carefully before committing to a specific program. This is particularly important if you are dealing directly with the seller. In most programs, you will deal with a real estate investors or group of investors who buy the property and sell it in a rent-to-own arrangement.
The fact that this program doesn’t transfer the property’s title immediately often puts buyers in a vulnerable spot. There are last-minute surprises in a traditional mortgage program, but the chances that you may be in for these surprises are even greater when you buy in a rent-to-own arrangement. If you fail to obtain a mortgage before the lease expires, you will lose the option money and all the monthly payments you made to the landlord.
Another important consideration is maintenance obligation. In most programs, the landlord is responsible for the maintenance and repairs during the lease period, but it can be negotiated. Your landlord may shift the maintenance obligations to you.
Alternative to rent-to-own programs in Houston
As already mentioned, you don’t own the property immediately in a lease purchase agreement.
But what if there is a program that enables you to have the title recorded in your name immediately despite your precarious credit situation?
Here at Shop Owner Finance, we specialize in helping credit-challenged buyers learn how they can buy with no credit check or income verification in an owner financing arrangement.
You pay a fixed rate of interest and the loan is amortized in 30 years just like a traditional mortgage does. You also don’t make any balloon payment and you can refinance any time you want. (See also: Is owner financing legal in Houston TX?)
If you are interested in learning more about our real estate brokerage service and how we can help you buy a home regardless of your credit situation, set an appointment today.