Rent to Own vs. Traditional Mortgages

Many people tend to explore Rent to Own options over traditional mortgages because of credit issues and/or personal financial reasons.Depending on the housing market, banks may be very strict with their lending which means if an individual has below “good” credit, it can be nearly impossible to quality for a loan.

So what are the major differences between to Rent to Own and traditional mortgages?

Rent to Own homes are arranged without any bank involvement. Typically, people seek out a lawyer and realtor to help with guidance, legal matters and the overall process. Rent to Own homes are often referred to as Owner Financed homes, because the “lending” falls on the owner. Rent to Own transactions are usually 24-36 month agreements where the party interested in purchasing the home essentially “rents” it from the owner. Their “rent” payments go towards the down payment of the house. Once the agreed term has concluded, the renter can then choose to purchase the house. Usually the owners complete the purchase by using their previous “rent” payments as a down payment and a bank-backed loan, after spending time fixing or establishing their credit.

Traditional mortgages are different in the sense that the owner of the home isn't directly involved with the purchaser. With a traditional mortgage, people interested in purchasing a home will first get pre-approved through a bank to find out the dollar amount they are eligible to spend. From there, they then begin shopping for homes within that price range. Assuming there are no hiccups along the way, once they find a house and the seller accepts the offer, the home goes into escrow. 

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