Buying or Selling a Home/Buy vs. Rent-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 (Chicagoland) 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 and it seems all odds are against them?
You did a great job of writing a synopsis of your situation! I am not familiar with your area as I am a Realtor in Silicon Valley in California. So, I cannot speak to pricing, market value or suggest any addition non-traditional options. These are my thoughts and suggestions:
* Age will not prevent your mom from being a signer on the loan. However, as you have noted, credit score and ability to re-pay it will have impact. Note: Lenders will use the lowest credit score of all signers to determine type of loan, interest rate, and down payment required.
* When family members sign jointly the lender often times wants to see both family members living in the dwelling. Should your sister become a signer, she must keep in mind this debt will follow her until the loan is re-paid. This will definitely have a debt-to-income ratio concern when she wants to start a life in a different home. As long as her name is on the loan a lender will consider the debt to be hers. This could keep her from renting or buying elsewhere, getting a credit card, buying a car, etc.
* Should your family decide to move forward anyway: Before signing a lease-to-own contract, I would STRONGLY recommend an attorney, or at the very least a Realtor, review it. Price and costs should be clearly spelled out in the contract. Do not accept a 'we'll see how it goes' type of Agreement. The price, the exact amount that goes toward the down payment each month, the interest rate, the length of lease prior to purchase, etc. should be crystal clear. Also, your family should also ask for references for previous clients. These references will be able to speak to things like -- How long did it take to actually get into the home due to needed repairs? Were there any hidden financial clauses?... Basically, are the sellers scam artists?
* There are 2 main reasons people own versus rent: Taxes and not wanting to move again. With the scenario you have described, tax relief is probably not the reason. The desire to move soon sounds like a valid one given the condition of the home.
Obviously, I do not know your family and any other additional concerns each individual may have. From what I have read however, I do not believe it is in your or your sister's best interest to assist in buying your parents a home unless their income is going to go up dramatically in some way in the future. As neither of us foresee this happening...
My suggestion would be for your parents to locate a home, even if somewhat out of the area, that they can afford once your mom is no longer able and willing to work, that their social security will provide enough funds for. If you and your sister need to supplement their income each month, that would be very helpful. However, at some point the two of you may want to lead your lives separately from them. This will mean keeping your finances separate as well. Please know, I completely understand this is not an easy decision to make or to explain to your parents.
'Hope this helps, CJ! Best wishes to you and yours!