Buying or Selling a Home/Buy vs lease-to-own
Long story short, my dad was an engineer and got laid off about 22 yrs ago and had to file bankruptcy. Ever since then my parents have been renting homes. The townhouse my sister, parents, and I are in currently we have been living in for about 15 yrs. This townhouse is so old and I think by the grace of God has not fell apart. My parents are in their early 60s and do not want to move again unless it's for permanently. They also don't want to move just to rent again or into another townhome. My mom thinks they’re too old for anyone to sell hem a home. I'm willing to find them a home. My mom has good credit, but only works an office job (about $13/hr). My dad is a teacher and has many school loans and bad credit. My sister is a waitress (makes about $35,000 annually) and thinks her credit is between 604-631. She is willing to go in on a house with my mom (she will be a first time buyer). With the money they make and the credit I'm guessing they will only get an approved loan for the low $100K. I fear those homes might need a lot of repair which we do not have money for. There was a rent-to-own company (hbrc-r-t-o.com) that we almost signed papers with a couple years ago, but my mom got laid off right before then, so we couldn’t anymore. Their company totally renovates the house before hand and puts all rent towards the down payment, which makes me feel more comfortable. However, my other sister is now concerned that when it’s time for the leased house to be bought, do the renovations make the value of the house go up which could cause us not to be able to afford the house? So my question is, should my parents try to buy, rent-to-own, or just continue to rent because of their age?
Lease-to-own transactions can be fairly tricky, CJ. And there is nothing wrong with them as long as all parties are in agreement and the buyer/tenant completes his/her part. I presume the company you almost did a lease-to-own with is in the business of buying houses, fixing them up and then selling them on a lease-to-own. Nothing wrong with that either, as long as you are aware that they will of course jack up the price prior to selling the property to you.
As long as you are in the lease portion of the lease-to-own you need not worry about whether your credit will help you buy the property. However, most lease-to-own deals (also called "lease-options") require the buyer/tenant to close the transaction by paying off the deal by paying the down payment and finance the transaction after three years. Of course, this can also be agreed to close at a later date. But if that be the case, the seller most likely will probably raise the price as time goes by. So, that means you can expect to pay a higher price if you ask the seller to make it, say, 5, 7 or 10 years.
Lease-to-own usually gives credit to the buyer/tenant from a portion of the rent paid down through the years. So, that would help you to accumulate at least a 20% (of the purchase price) as down payment, which most banks are requiring these days. But we don't know what the credit requirements will be a few years from now. But you certainly could help your credit climb in desirability as far as the banks are concerned. You would have to maintain a vigil on your credit and what the banks are requiring for the house you are buying.
Also, on some lease-to-owns the buyer/tenant can also be given credit for the cost of repairing and rehabbing (not maintaining). It all depends on how you negotiate the lease-to-own you'll be involved in. If it turns out you decide to not ultimately buy the property, technically you could be considered to have an equitable title even though the title is not in your name. I would recommend consulting with a real estate attorney and have him/her explain what "Equitable title" is. You can bet the seller is going to have an attorney working on his side.
With all this you need not be concerned about your parents doing a rent-to-own at this time. If they have the money for a 20% down payment and enough good credit to satisfy a bank to do a mortgage, I would recommend they buy. Then they need not be concerned about moving continually . . . as long as their mortgage payments are kept current. Otherwise they will probably have their rents raised periodically as a tenant. I do wish you well.