GeoffM

This thread on the subject is closed otherwise I would have carried on.

So 18 months later, what is the current thinking on rent-to-own/buy? Obviously the contract needs going through with a fine toothcomb, the purchase price needs to be valued properly (maybe get an in-depth survey done?), need to make sure the premium is going into an escrow account... anything else?

Supposedly the market around here is starting to pick up. In 15 months we'll have two tax returns which is what Wells Fargo want to consider a mortgage. I'd like to think our credit history and score will be sufficient by then, and we should have a reasonable deposit, maybe 15-20%. Some places have a 1-5 year contract period which gives more time anyway, and no huge downpayment at the start.

Crazy or just need to be very careful?

Bob

Depends on local market I guess....definitely want to credit check the owners though...you don't want them going bump in the night taking your higher rated rent for nothing :/

Mummy in the foothills

I'd keep trying for a normal mortgage and buy outright the usual way. I'd be afraid the owners were going to stop making payments and let the place go under if things got tough for them.

Michael

1. Make sure that the landlord is not under water on his equity. Over the past several years, there have been many scams on lease to own where even if the option to buy is exercised, the home can't be sold since the landlord is under water and has not been making the mortgage property tax payments. Eventually he just disappears with your deposit and excess rent payments and you end up with an eviction.

2. Expect to pay a premium. Normally lease to own has a premium of 5%-20% (depending on the market and length of contract) over the value of the home. Exercising the option is usually only viable if the home increases in value beyond that premium.

3. Expect to make a down payment plus rent above the current market. Sometimes the down payment and excess rent can be refunded to the buyer if the option is exercised but is normally lost if the option is not exercised.

4. Purchasing a home directly is generally better than lease to own contracts. Usually people purchasing lease to own contracts have very poor credit and no down payment and hope that their credit will improve by the time they exercise the option (they still must qualify for the loan) and the home significantly increases in value and the increased equity becomes the down payment. Seldom does it work out ok except in a very hot housing market where the equity has significantly increased well beyond the premium charged for the home.

GeoffM

Thanks everybody. Seems that ensuring the homeowner pays his bills is the biggest issue here, and no form of contract, agreement, or otherwise can provide that assurance. And you're right, the owners are usually on shaky credit terms as it is.

Michael

If a contract has a very long option period, generally the option to buy has a very high premium over the current market value of the home.

Bink

Why 15 months until you have two years tax returns? Could be as little as 12 months, no? I would think you are better off waiting and getting approved by WF and then are free to look at any houses you like.

GeoffM

They want two tax returns and this April will be my first, so another 14-15 months until the second. Unless they mean submission I guess. That is their standard policy, they said, though they do make exceptions.

Anyway, thanks to the additional things pointed out here that I didn't see elsewhere, I've decided against it. It just seems too risky, and uncontrollable risks at that.

Bink

I guess my point was why wait until April to file? I've already had my return accepted and my refund for 2012 (filed in late Jan, got my refund last week).

EDIT: You may have more luck going through a smaller broker/mortgage company where you can liaise with the underwriter. That's what I did and my mortgage was then sold to Wells Fargo within a week of closing!

GeoffM

Ah, I didn't know it would be processed that quickly! I know, I know, I need to get on and do it. People keep coming up with things I can claim for though - but nobody answered by moving expenses question last week!

Must do it this week.

Bink

I knew I was owed money so that motivated me!

I don't think anyone is sure of the answer wrt the moving qn!! I suspect you can claim it but I'm not sure. I think the other reason that no one has answered is that company's either have paid for flights directly for people or their taxes have been dealt with by someone like KPMG and they don't know exactly what KPMG did!

GeoffM

I have yet to pay anything so it's all one way for me - bank account to IRS!

Just to clarify, I wasn't complaining that nobody answered! But you're probably right, most people have it covered. And TBH, it's a bit of an unusual situation. I think I'll run it through the accountant again, just to be sure he understands what I'm trying to say as it could well have been my explanation.

Bob

Some of the expenses can be claimed, but not others and it also depends on how/who paid for it.

Bink

I thought flights, first nights accommodation and shipping (up to a limit which I can't remember offhand) were all tax free expenses. My company paid
For these directly though when I was relocated.

Bob

To an extent.