Sometimes it is unclear if you should Rent, or Buy.  Sometimes it is better to Rent To Own, or buy on Land Contract instead of getting a Bank Loan.  Self employed people or those with bruised credit may prefer to avoid banks or mortgage companies.   

Whatever your situation, there are many ways to get a home.    

The main thing for you to decide is:   Do I need more room, or a nicer home, or a different location?  If Not really, Stop Looking.   If Yes, See Next Question:

Q. Do I want to Rent, Buy, or Rent To Own? 

• Renting: 
  • Who Rents:  Usually, Renting is for people who are new to an area, or have a new job or unstable income.  Some have a temporary living situation expected to change (student, single, divorced, newlyweds, etc.).  Some rent because they have low income or bruised credit.  Some just don’t want to be bothered with repairs or lawn care.   
    • Advantages:  This living arrangement usually offers the lowest monthly cost, and if you rent “month to month” you can move out whenever you want, with as little as 30 days notice.
    • Disadvantages: This arrangement is the worst use of money over time.  The owner, or “landlord” earns price increase over time and from your improvements.  You never get anything back when you move out.  Financially, it is like throwing your money away. 
    • Costs and Cash Needed = Cost might be from $350 or $400 per month to as high as $1800 per month, or more, depending on the quality and location of the rental unit.  Renters usually need the amount of two months rent in order to get started.  This includes a security deposit equal to one month’s rent, and you pay the first month rent in advance. 
    • Return on Payments:  Monthly payments are gone, once made, and you never earn any return for your payments or improvements.  The security deposit may be returned, or not, depending on the terms of the lease.  If you break the lease, or move out before your contract is over, you may forfeit the deposit and the landlord may be able to take you to collection for unpaid months.  If you stay to the end of your lease, the landlord can use the security deposit to pay for repairs needed or any damage done to the unit while you lived there.  In most cases, the security deposit is not returned complete, but there may be a partial or full return of the deposit the rental unit is returned in PERFECT condition.
    • Subletting, selling, or renting to others if you need to move: Generally not allowed.
    • Moving On: Complete the lease or give notice – depending on terms of lease and move on.       
• Buying:   
  • Who Buys: Buying is for people with steady income and a reasonably stable credit score (600 or above) who expect to live in the same place for a few years.  Buyers want to build wealth over time by earning money due to natural appreciation of home prices.  They may also earn money by making significant improvements on the property, such as new paint, bathroom and kitchen updates, and etc. 
  • Advantages: This is a much better investment because you earn the price increases over time and from your improvements.  Monthly payments go largely toward interest and taxes, with a small amount toward the price of the house (principal).  You generally don’t earn wealth by paying off the house, but by selling it for more than it cost.  Monthly payments may seem to be higher than renting, but tax credits will return about 25% of the monthly payment in the form of a higher tax refund from annual tax returns.  Put another way, you can get a nicer house, worth about $1000 a month house and pay only about $750 per month after you consider the tax advantages.  When you move, you may make as much as 3% per year in profit, sometimes more.    
  • Disadvantages:  Buyers sometimes need a down payment and/or closing costs (fees to the bank for making the loan, and to the title company for guaranteeing the title).    Buyers will pay more in taxes and insurance than renters.  Taxes and insurance generally come due once or twice per year, or these can be placed right in your monthly payment (a small extra amount added to the monthly payment, so that you don’t have large bills coming due every 6 months).
  • Costs and Cash Needed:  Depending on credit score, you can buy with Zero Down, and have seller pay your closing costs (if you add these costs to the price of the house).  Those with lower credit scores, or less stable incomes may have to have a down payment on the order of 5% to 20%, and may pay more per month for the same price house (due to higher interest rate).  If your credit score improves, you can re-finance later and get a lower payment (usually after 2 years).
  • Return On Payments:  Historically, the value of a house will go up an average of about 3% per year, or about 10% in 3 years. 
  • Subletting, selling, or renting to others if you need to move:  Generally, one can rent the house to another, but you may have to consult the terms of your mortgage loan and insurance policies.
  • Moving On:  When it is time to move, you generally use a Realtor to help you sell the house.  Realtor Commissions as well as closing costs may amount to about 8% of the price of the house at time of sale.  To make a profit on a house, you generally need to stay there 3-5 years, or make improvements while living there.

• Rent To Own, (also called Lease Purchase) and Land Contract:  These are hybrid situations blending benefits of both renting and owning.  In both cases the buyer can enjoy benefits of ownership and appreciation, which is better than renting.  In both cases, there is usually a larger down payment required to offset the risk that you will not complete the purchase.  In both cases, there is usually a pre-set deadline at which time you must buy the house or move out and forfeit your down payment.  Land Contract gives the buyer more legal rights and greater ability to prove those rights as well as more protection from eviction in event of non-payment (if they have paid a significant portion of the value of the house).  Land Contract means contract for land, or contract for deed.  In both cases, the seller remains the legal owner until the Land Contract or Lease/Purchase Agreement is fulfilled.  We use the terms interchangably here, but there are important legal differnces.  Please consult a Realtor or Lawyer for details. 
  • Who Rents to Own:  This is usually for people who cannot get regular bank loans (mortgages) due to new jobs, temporary work situations, those expecting a change in income (students, young people, newlyweds, growing families), or those with bruised credit or high bills (medical bills perhaps?).  Some buyers just don't trust banks! 
  • Advantages:  Buyers who don't want or cannot get a favorable bank loan due to a temporary situation can avoid renting or moving twice.  Buyers can still obtain a home and avoid throwing money away on rent.  Sometimes a buyer with credit challenges or “hard to prove” income can get a better interest rate or lower down payment this way.  There are no closing costs at the time you move in, and not until you buy it with a bank loan at some time in the future. 
  • Disadvantages There is usually higher purchase price for same house, and a down payment of 5% to 10% is not uncommon.  The seller gets the extra money because you are not buying it until 1 or 2 years later.  Your down payment reduces the eventual purchase price.  If you don’t buy at the end of your term (usually 1 – 2 years) you will lose your down payment and be required to move out     
  • Cost and Cash: Some Rent To Own plans start with $2500 to $3000 down, but most  require 5% to 10% down.  Some require 15% or 20% Down.  You will pay each monthly payment in advance.
  • Closing costs:  With Rent to Own or Land Contract there are hardly any closing costs.   Closing costs on a bank loan will be about 3% of purchase price but this is not true for Rent to Own or Land Contract purchases.   
  • Return on Payment:  About the same as buying, maybe better if you get a better interest rate
  • Subletting, selling, or renting to others if you need to move: Depends on your agreement with seller.
  • Moving On:  If payments are on time, you may generally sell following the same procedures as if you had bought the house with a bank loan, but the legal owner will need to sign the documents as well.  You may keep any profit after paying off previously agreed purchase price.

Further consideration:

Do I care more about what the actual price is, or am I most concerned about Down Payments and monthly payments?  Is the neighborhood increasing in value over time?  Are homes nearby being well maintained?  How long will I stay in this house.  Call if any questions.  419-764-9649