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 Nevada City, CA

Latitude: 39.261435 -- Longitude: -121.018602

Other Area Cities: Grass Valley Nevada City

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Nevada City is the county seat of Nevada County, California, 166 miles (267 km) northeast of San Francisco. In 1900, 3,250 people lived in Nevada City, California; in 1910, 2,689 lived here. The population was 3,001 at the 2000 census. The name comes from the Spanish word meaning "snow-covered," referring to the snow-topped mountains in the area. It was first settled in 1849, during the California Gold Rush, under the name Nevada (the "City" was added later to avoid confusion with the State of Nevada). In 1850-51, it was the most important mining town in the state, Nevada County being the leading gold-mining county in the state. Nevada City was incorporated in 1875 and chartered in 1885. Joanna Newsom grew up in Nevada City, which she claimed to be " swarming with artists and hippies and old prospectors..." -- Source: Wikipedia.com

California 2000 Census Population Profile Map

	Nevada City	California	United States
Population	3,001	33,871,648	281,421,906
Median age	43.5	33.3	35.3
Median age for Male	41.7	32.2	34
Median age for Female	45	34.4	36.5
Households	1,313	11,502,870	105,480,101
Household population	2,814	33,051,894	273,643,273
Average household size	2.14	2.87	2.59
Families	740	7,920,049	71,787,347
Average family size	2.71	3.43	3.14
Housing units	1,415	12,214,549	115,904,641
Occupied units	1,313	11,502,870	105,480,101
Vacant units	102	711,679	10,424,540

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