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Question
Buying a home on land contract or option to buy?
We have an opportunity to rent to own or land contract a home. They are selling for 29000 and we would be paying 400 a month which is the exact amount of their mortgage.So my questions are.... after say 12 months of paying 400 does that mean we only owe 24200? and if paying 400 a month that means ideally we could have it paid off in about 7 yrs? what if they owe more than 29000 on their home does that mean we just pay the 29000 and they make up their own difference?
3 years ago - 3 answersBest Answer
You have outlined some questions you need to have answered. Many times a rent with option to buy gives you a right to pay a certain price for a property at some future date. It doesn't mean that any of the monthly rent goes toward the purchase price. It would depend on your contract. Some may go toward the purchase but usually not all of it as there are expenses they might incur. It is RENT with only an option to buy, but they may determine some of the rent to be toward a down payment. You lose it if you don't exercise the option, but it is the rent. If it is only the amount of their mortgage then it sounds pretty good but may depend on what happens as to what you get. And the payment of $400 would have to have taxes and insurance in it and can't reduce the mortgage by the full amount of the rent. You would have a problem if what you owed was less than waht they owed or if there are any liens on the property. Your contrat should state that it will be conveyed free and clear and all the details.
On land contract, you are buying the property. So it has an interest rate and an amount that you owe and you pay it which includes the principal and interest, but you also have to pay the taxes and insurance. If they pay them for you, then you must reimburse it as the house is being purhased by you just like they are the bank. So you have the principal (goes toward the loan) , the interest whih they receive in income like the bank (and which they may be paying the bank as they owe that) and then the insurance and taxes whatever they are. A land contrac can be until the house is paid off or it can be for a certain number of years at which time you have to get a mortgage and they get the balance (or their loan is paid off and they convey the title.
If they have any liens against the property they should pay them off so you have to make sure that when the land is conveyed that it is free and clear.
It is a way where people with credit that is not the top can get a loan - from the owner. But sometimes the owner puts an inflated price on the house and they are making a lot of money. As you desribe it, this doesn't sound like what is happening.
Good luck to you. I have had houses on land contract (sold them) and it worked out okay for both of us. But I do know of unsrupulous landlords or owners who really gouge. Be areful that you know the value of the home and that the amount is reasonable and you outline exactly waht is covered. Good luck.
Other Answers
discuss this with your real estate agent, attorney, and mortgage lender. these are the power people that will help you best.
by versantly - 3 years agoOn a "rent to own" you pay $400 a month during the rental period. At any time you can change from Renter to Buyer by paying $29,000 to the seller. If you pay $400 rent for 3 years, you still owe $29,000.
On a land contract, you make payments each month but they are mortgage payments, not rent. So the loan will be paid off in 30 years.
If they owe more than $29,000, you won't own the house unless you pay off what they owe. It is easy to check; walk into their bank and ask..
