Rent to Own / Owner financing

November 20, 2008

Just recently I talked to a home repairman. He was telling me how he’d worked for a builder for over 10 years and how he had an “agreement” to purchase a home from his boss. They’d agreed on a price ($23,000) and on an amount that would come out of his paycheck every month. But that was it. Nothing in writing, no mention of interest. The home was in bad repair and the employee spent long hours and money renovating the home. The builder refused to do any repairs as he told the employee that as a home “owner”, it was the employee’s responsibility. Fast forward 10 years. The employee had come into some money and wanted to pay off the home and get a deed. He had enough money to pay off the principle and enough left over to pay interest of 8%. The builder refused the payoff, stating that as the home was worth more now, he wanted an additional $20,000 but that if the employee wanted, he could continue paying monthly. Needless to say, that employee is no longer working for the builder and no longer living in the house he’d called home for over 10 years.

Many people with poor credit feel that a “rent to own” option will help them find a home. They think that it is similar to going to some of the “no credit check” rent-to-own furniture stores that are in every town. “I’ll pay $1000 a month and then one day I’ll own the home”. Yes, it is possible to structure a “rent to own” contract, but it is extremely important to lay out all contingencies. How much of the base rent will go towards principle? Who is responsible for repairs? Is there a default clause if the buyer leaves the home before the house is paid off? Will the buyer forfeit the equity or will he get some of it back? In the case of delinquent rent, will the equity be applied to delinquent rent and the purchase/rent to own contract be voided? Remember, in a rent to own situation, the tenant/purchaser does not have title to the property.

Owner financing is different. In this case, deed is passed to the buyer at closing and a mortgage is held by the seller. The buyer will sign a mortgage note and mortgage the home. The terms of the note will have been negotiated before closing. In this case, the seller is not responsible for any repairs to the home and must proceed through legal channels to foreclose on the property should the buyer default on the mortgage note. Most sellers are reluctant to owner finance to someone with poor credit, but if there extenuating circumstances, this might be an option for those buyers who are not eligible for traditional financing.

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Local Information for Mobile, AL

Latitude: 30.679523 -- Longitude: -88.10328

Other Area Cities: Bay Minette Daphne Chickasaw Prichard Saraland Theodore Mobile

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The settlement, then called by the French name "Fort Louis de lá Mobile", was first established in 1702, at Twenty-seven Mile Bluff on the Mobile River, as the first capital of the French colony of Louisiana. Following a series of floods, the town was relocated downriver to its present location near the head of Mobile Bay in 1711 and named Fort Conde. The capital of Louisiana was moved to Biloxi in 1720 and to New Orleans in 1723 and Mobile was relegated to the role of frontier town and trading post. In 1763, the Treaty of Paris was signed, ending the French and Indian War. The treaty ceded Mobile to Great Britain and under British rule the colony flourished. The British renamed the city Fort Charlotte, after the English Queen, and reenergized the port. Major exports included timber, naval stores, indigo, hides, rice, pecans and cattle. -- Source: Wikipedia.com

Alabama 2000 Census Population Profile Map

	Mobile	Alabama	United States
Population	198,915	4,447,100	281,421,906
Median age	34.3	35.8	35.3
Median age for Male	32.3	34.4	34
Median age for Female	36.1	37.2	36.5
Households	78,480	1,737,080	105,480,101
Household population	192,735	4,332,380	273,643,273
Average household size	2.46	2.49	2.59
Families	50,764	1,215,968	71,787,347
Average family size	3.09	3.01	3.14
Housing units	86,187	1,963,711	115,904,641
Occupied units	78,480	1,737,080	105,480,101
Vacant units	7,707	226,631	10,424,540

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