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 Austin, TX

Latitude: 30.300474 -- Longitude: -97.747247

Other Area Cities: Leander Cedar Park Round Rock Elgin Austin Hutto Manchaca Pflugerville Kyle Dripping Springs

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Austin is the state capital of Texas and the county seat of Travis County. Situated in the region of Central Texas, it is the fourth-largest city in Texas and the 16th-largest in the United States. As of the 2005 U.S. Census estimate, Austin had a population of 690,252.[1] The city is the core cultural and economic center of the Austin–Round Rock metropolitan area with a population of 1.4 million. The first documented settlement of current-day Austin occurred in 1835, and the site was named Waterloo in 1837. In 1839, Mirabeau B. Lamar renamed the city in honor of Stephen F. Austin. Its original name is honored by local businesses such as Waterloo Ice House and Waterloo Records. Austin is situated on the Colorado River and on the Balcones Fault, which in much of Austin runs roughly the same route as the MoPac expressway. -- Source: Wikipedia.com

Texas 2000 Census Population Profile Map

	Austin	Texas	United States
Population	656,562	20,851,820	281,421,906
Median age	29.6	32.3	35.3
Median age for Male	29.1	31.3	34
Median age for Female	30.2	33.4	36.5
Households	265,649	7,393,354	105,480,101
Household population	636,432	20,290,711	273,643,273
Average household size	2.4	2.74	2.59
Families	141,589	5,247,794	71,787,347
Average family size	3.14	3.28	3.14
Housing units	276,842	8,157,575	115,904,641
Occupied units	265,649	7,393,354	105,480,101
Vacant units	11,193	764,221	10,424,540

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