Rent to Own vs. Traditional Mortgages

 

Establishing and Repairing Credit
It’s no secret that most people seek out Rent to Own home options over traditional mortgages because of credit issues: either their credit is fair or poor or simply just unestablished. Depending on the housing market, banks may be very strict with their lending. So what are the major differences?

No Banks Involved
Rent to Own homes are arranged without any bank involvement. Many people may use a lawyer to protect themselves or a realtor to have good counsel. But, there are no banks or bank loans involved. Rent to Own homes are often referred to as Owner Financed homes, because the “lending” falls on the owner/seller. Now this is where it gets a little tricky.

The Long Haul
RTO transactions are usually 24-36 month agreements where the party interested in purchasing the home essentially “rents” it from the owner. Their “rent” payments go towards the down payment of the house. Once the agreed upon time has passed, the renter can then choose to purchase the house. They typically complete the purchase by using the down payment built from those “rent” payments and a bank-backed loan, after spending time fixing or establishing their credit.