Many buyers that had a bankruptcy or foreclosure through the crash are out there trying to find a place to call their own. Some can not qualify for a loan for a few years to come others are primed and ready to buy the old fashion way with a loan. There seems to be a misunderstanding of what an owner carry contract is vs. a rent to own. Today we will spend a little time exploring what the differences are and what is available in the Central Oregon Real Estate Market for Owner Carry Contracts.
Rent To Own
When a buyer chooses a rent to own property they are truly just renting. Most rent to own properties are formulated in a manner that part of the rent is credited towards the buyer’s closing costs or down payment. There The buyer truly is a tenant until they can qualify for the loan and fall under the terms of a tenant. A couple things to be cautious about; your rent payment should be at least if not more than you would anticipate your loan payment to be. You will need to show the lender you are able to meet the payment every month. If you are late in paying your rent, it can cause a lender to not qualify you for the loan. Another item to be very careful about is making sure you have all your terms in writing including when you will apply for the loan and be able to close. While in the rent to own process the seller (owner) will be paying the mortgage if any and building equity (if any).
So…. what’s in it for you the tenant? You lock in the price of the home and you can live there until the terms set forth that you can actually purchase the home. If done correctly you are also building funds towards your closing costs or down payment.
Owner Carry Contract
Again this property is perfect for the credit rebuild. You will need a down payment, typically a seller will want 20%, reason being if you default they will have to go through a foreclosure process with you which is costly. Secondly they become your lender so to speak. On an owner carry contract you will become the owner at the time of closing the seller will become a lien and you will make your payments either to the seller (which I do not encourage) or a third party company that oversees the payment that has no interest in the property (I do encourage this). There are additional costs involved, just as if you were doing a loan, title fees, escrow fees, taxes, insurance and all of that plus the cost of setting up the third party payment company.
An owner carry contract is not typically the same terms as a bank. You will typically pay a higher interest rate, you will pay a payment based on a term both you and the seller agree to, but most often the seller will want you to cash them out with a loan (almost like re-financing) in a shorter time frame than 30 years. You will hear terms like…. your payment will be amortized over 30 years with a 5 year balloon. This means that your payment is based on a 30 year loan, however at the end of 5 years the seller wants you to get a loan from elsewhere to pay him off. Now, this is not always the case but does tend to the the norm more than the exception.
Most owner carry contract sellers are aware that the buyer that purchases their property will have less than perfect credit, otherwise they would go to a bank for the lower interest rate. However, they will or at least should take a look at your credit score and credit report. They will be looking for things that concern them, so be honest with your agent and allow them to disclose to the seller why you have a need for the owner carry. Being upfront will save you a lot of head ache and heart ache down the road. One of the most frustrating parts of this process is coming up with a time frame that will truly allow you the buyer to actually qualify for the loan… remember that things do happen in life and if going into this contract makes your finances tight it most likely is not the right thing to do.
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