We get a lot of inquiries about “rent to own” homes in New Orleans. For people who want to own their own house but don’t have the best credit, it offers some hope of quick ownership.
There are several reasons why rent to own is risky for everyone involved.
Large, non-refundable down payment
Rent to own (or lease purchase) sellers will typically require a substantial down payment that is non-refundable. An alternative is to apply a non-refundable portion of the monthly rental payments towards the down payment. Either way, if the deal falls apart or doesn’t close for any reason (including if you can’t qualify for a mortgage at the end of the term), the buyer/tenant is generally out of those funds.
Searching for a rent to own house is like looking for a needle in a haystack. Most people selling their home want or need the funds from the sale in order to move on and purchase another property. They can’t do that if they rent the house instead of selling it outright.
Uncovering hidden property defects
Should you, as the buyer/tenant, find defects after inspections and after living in the property for a time, the seller is generally protected by the contract to purchase and is not obligated to make any concessions or repairs. Choosing to walk away also means walking away from your down payment.
Most sellers will make all maintenance the responsibility of the tenant. Dishwasher breaks? It’s your problem. Pipe bursts? Again, your problem. Also, any improvements you make to the property before getting permanent financing are retained by the seller.
If the owner decides not the pay the mortgage each month or the property taxes each year, you risk the possibility of not just losing your down payment, but also being evicted with little notice.
While rental income can be an exciting possibility, what happens if the tenant can’t afford to actually purchase after renting for a couple of years? You are back at square one, starting the selling process all over again in what might be a completely different real estate environment than the one we are experiencing today.
Find a place to rent and save as much money as you can. Work with a reputable, local lender who can tell you the steps you need to take to improve your credit score and qualify to purchase any available home in your price range. Ask about bond money assistance, seller assistance or any other special programs that can help you in your quest for home ownership.