Today we’re gonna look at the how does rent to own work with bad credit & good credit and rent to own program that’s available in the mortgage market.
What is it?
Well, really it’s a program in which you partner with another organization that has an investor.
You pick a house and if you qualify the investor buys the house, you rent off that investor for a period of time and then eventually you buy it back off that investor once you’re able to at the end of a contract.
We’re gonna look at the details of that. We’re gonna see kind of what it looks like if you have bruised credit and you want to get involved in this. What about if you have good credit?
General Guideline For Bruised Credit
And then that’s what we’re gonna do on there so you have a good understanding of this program.
For bruised credit – so basically to get involved in the program. The investor buys the house that you pick, but you have to put 5% down and 1% fee.
Now, this is someone with bruised credit, the bad credit they wouldn’t be able to get a mortgage otherwise.
Then they’re gonna rent off that investor anywhere between three to five years. Probably on the five-year side of things if they have bruised credit.
At the end of five years, they’re gonna buy it back from them and so what happens is you must buy it back.
So there are consequences if you don’t. You’re gonna be in a contract and that’s why this particular one, this contract, you need to have a lawyer read it and give you advice legally whether you should or shouldn’t because there’s a certain level of risk involved in this program.
So you need to have a lot of money. So basically the minimum is four times the income to value to the home value.
And that just means the math is, if you make 100,000 dollars times four it’s $400,000. So you can get a house on the minimum side of $400,000 in this program. If you make like your household income is $100,000.
So if one spouse makes $70,000 and the other spouse makes $50,000 that’s $120,000. So then they’d qualify for a higher amount around $480,000.
So that’s bruised credit one of the damages, one of the concerns I have, with someone with bruised credit getting in this program is you are going to rent off of the person who bought this at a very high rent price.
And part of that rent goes into the down payment that you’re gonna eventually you have to do. But because your rent payments are so high the person with bruised credit usually there are patterns that people develop so they eventually have bad credit.
And if your rent payments are so high and you’re not able to really fix the bad credit issues by the time five years at the end of the contract is up. You have to buy that house if your credit still is not good enough to qualify under the stress test, either an A or Blender, then you’re in big trouble.
General Guideline For Good Credit
So let’s look at if you have good credit. If you have good credit maybe 3% down or 10,000 whichever one is greater just to get in the program.
You’re pretty much looking at a three-year program there because all they want to do is rent there for a time all you wanna do is rent it for a time and then you buy it out. Just give me enough time to buy it out.
After three years you must buy the house and the same thing on the income.