Do foreclosed rent to own homes exist, and where can you find them? Often, if homes are foreclosed upon, or in the process of foreclosure, the owner of the home or a Realtor may be able to help.
Foreclosed Rent to Own Homes Explained
With the housing crisis, some lenders who hold mortgages on homes will consider a rent to own option to qualified buyers. In most cases, these rent to own homes will only be offered to homebuyers or investors with good or excellent credit scores. Certain lenders may choose this option to avoid placing the home up for sale.
Most foreclosed homes that are placed on the for-sale market sell for a price less than what is owed on the home. Other rent to own homes that are in foreclosure are offered by the owners of the home and can be found in classified ads or by a Realtor.
Find Rent to Own Homes
Not all lenders will consider rent to own homes once the homes have been foreclosed upon. Unlike short sales, where the lender is willing to accept a new homeowner at a home sales price less than what is owed on the home, rent to own homes and their contracts work differently.If you search for "rent to own homes that are in foreclosure" on the Internet, you will find many companies making the claim that they can help. Most of these companies require high fees to find you a rent to own home, but you can probably find one on your own.
There are two great ways to find lease to purchase home properties. First, try browsing the real estate section of your local newspapers and see if there are any listings that say for sale by owner. Some of these homeowners, but not all, may be near foreclosure and instead of facing foreclosure will offer a lease to purchase option.
Second, try speaking with a Realtor in your area. Many will know of the properties that are near foreclosure and may be able to help you speak with the owner to see if renting to own is a possibility. Keep in mind that if a Realtor helps you find a rent to own home, there may be a commission fee.
Tips on Buying Foreclosed Rent to Own Homes
If you find a homeowner facing foreclosure who wants to enter in a lease-to-purchase contract it's best to consult with a real estate attorney, especially if you're unsure on how the process works. Because the homeowner is attempting to avoid foreclosure, permission may be required from their lender to enter into a formal lease-to-purchase agreement that includes an escrow. Escrow will ensure you get a tax credit for the interest you pay on the lease to purchase contract each year. Steer clear of homeowners who are facing foreclosure and ask you to take over their mortgage payments on their behalf, as the homeowner may kick you, the renter, out of the home once their mortgage is up to date.
If you do choose to rent to own a home from someone facing foreclosure, make sure the lease is not a net-net lease or a lease where you are responsible for all repairs and all property taxes, especially since you will not be able to deduct them at tax time. In addition, expect the homeowner to request you provide a copy of your credit report and proof of wages as well as references. You can obtain a free government credit report annually from the Federal Trade Commission or FTC.
Fannie Mae's Deed-for-Lease Program
Fannie Mae also offers their Deed-for-Lease program or D4L. If a homeowner is facing foreclosure, and they qualify, they can opt to rent the home at fair market rental rates to stay in the home. While this is not a lease to purchase program, Fannie Mae will work with the homeowner on a loan modification program during the rental period to help stop foreclosure. To be eligible for this program the monthly rental payments must not exceed more than thirty-one percent of your monthly gross income.
Only homes that have Fannie Mae mortgages qualify for this program. During the D4L program period, most homeowners will be able to work with Fannie Mae to help them stay in their home in lieu of foreclosure.
For more information on how to qualify for the D4L program at Fannie Mae, visit their Help for Renters web page.
Rent to Own Homes in Foreclosure
As with any real estate contract -even if it's only between you and the current homeowner- when you seek foreclosed rent to own homes, have your attorney or Realtor help you. If you agree to a rental contract with a homeowner, you may also be asked to provide a down payment to ensure your seriousness.
Remember that renting to own a home is a commitment on your part, and if you don't feel you can make the monthly rental payments, it is best to avoid it. When you lease to purchase real estate, especially where no formal lender is involved, not only should you check out who you are buying from, but be prepared to be the subject of a thorough background check yourself.