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 Harrisburg, PA

Latitude: 40.269789 -- Longitude: -76.875613

Other Area Cities: Harrisburg Camp Hill Colonial Park New Cumberland Mechanicsburg Middletown Progress Dillsburg

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Harrisburg is the capital of the Commonwealth of Pennsylvania, a state of the United States of America. As of the 2000 census, the city had a population of 48,950. The Harrisburg area population was 643,820, making it the fourth most populous metropolitan area in Pennsylvania, after Philadelphia, Pittsburgh, and Allentown. Harrisburg is the county seat of Dauphin County and lies on the east bank of the Susquehanna River, 105 miles (169 km) west-northwest of Philadelphia. Harrisburg has played a critical role in American history during the Westward Migration, the American Civil War, and the Industrial Revolution. During part of the 19th century, the building of the Pennsylvania Canal and later the Pennsylvania Railroad, allowed Harrisburg to become one of the most industrialized cities in the Northeastern United States. -- Source: Wikipedia.com

Pennsylvania 2000 Census Population Profile Map

	Harrisburg	Pennsylvania	United States
Population	48,950	12,281,054	281,421,906
Median age	33	38	35.3
Median age for Male	32.3	36.5	34
Median age for Female	33.6	39.4	36.5
Households	20,561	4,777,003	105,480,101
Household population	47,698	11,847,753	273,643,273
Average household size	2.32	2.48	2.59
Families	10,912	3,208,388	71,787,347
Average family size	3.15	3.04	3.14
Housing units	24,314	5,249,750	115,904,641
Occupied units	20,561	4,777,003	105,480,101
Vacant units	3,753	472,747	10,424,540

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