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Totally Random lease-to-Own option from our Landlords, Should we consider?

post #1 of 6
Thread Starter 

A little backstory: We have been renting the home we live in for 2 years. We have a family of 6, and 3 of our 4 children spend part of the time at their other parent's houses. Our home is a newer 3 bedroom, 2 ba home with a large yard and garage Our toddler (18 mos) currently shares a room with us (our room is big) and my two boys DS1 and DS2 share a room, and DSS has his own room. 


The past several months we have been hemming and hawing over what to do- DH and I both have bad credit (though fairly minimal debt, a few thousand- along with some student loans that are getting regular payments- it just needs paid off and credit rebuilt- it's just taking a long time because I am currently a SAHM etc). We *think* we need a bigger house considering our family size, but any home with an additional room (4 bedroom+) in our area is a few hundred more than where we live already, and we are already just getting by. Of course the seemingly better option is to buy because we could afford a larger house for a mortgage payment that is probably less than where we are now! However, the reality is that our credit needs work and that will take a few years, and I plan on slowly taking on more work over the next year too. Our original goal was to move this summer (when lease is up), to a new rental or to buy, but obviously the buying option is out so we have been looking at what the going rate on rentals is. This will require a hefty deposit and the stress of moving, and I've been anxious about it because I typically plant a garden in the spring and don't want to invest in it if we are going to be moving.


Presently: We used to rent from a rental agency that went under about 6 months ago. The homeowners took over as our landlords- we were used to dealing with them already because they took care of all the maintenance and repairs etc. They are probably in their 60's and are pretty well off, and have been great- They replaced both the dishwasher and fridge since we moved in, had the furnace worked on, hired seasonal landscapers, etc. We pay rent on time, and there's never been any conflict. Recently, out of the blue, They were corresponding with DH about some stuff and asked DH if we were interested in leasing to own the house! They kind of have an idea of where we're coming from and what our goals are... The only time I've know people to do this was with buying land around where I live (happens a lot), but not a house. I've researched it some, so I think I have an idea of how it works.



SO here's my questions: Does anyone have experience or opinions about this? It seems like it's one of those "could be amazing, could be a nightmare" scenarios. The reason I'm even considering it is that they are very dependable, financially sound people and they have been on the up and up about everything since we started renting, and having lived here I know that the house is in really good condition. Our other big issue is size- We kept discussing getting a larger house (with one more room, which once you upgrade to a 4 bedroom there is often a family room too). Our house feels crowded at times, we have 4 boys! but they are all 7 & under, and as I said reside with their other parents part of the time. Our yard is pretty large so if we owned the house (by repairing credit, getting financed and buying from LLs in 3 or so years) we could potentially add on to it eventually. This also might be a good "starter house" and not necessarily a "forever" house. Just trying to consider it from all the angles- IF this is a legit situation (landlords are reliable, contract is good), and w efollow through, will this potentially help our credit and history, not to mention allow us to be home owners sooner & easier? Is it worth forgoing a larger house (which we may or may not be able to afford anyway) to commit to this home, make it ours, and eventually move on when we know for sure we can afford an upgrade? I know for many a 3 bedroom house for 4 (same gender) children is the norm. I think DS3 will eventually be able to share a room with another brother, for the time being.



Thank you!

post #2 of 6

Quick answer:  If there are no unaffordable or unfixable major flaws with the house, which a good home inspection will uncover, buy it.


I was in a position once where I thought we needed more space, so we moved to a much larger house, and after living there for awhile, it turned out we really would have done fine without the extra space.  We now live in a much smaller house, closer to the size of the first house than the second.  Maybe your new hobby and focus for any home improvement can be on maximizing the efficiency of the space you have.  The MDC decluttering forum is great support for this!!!


I have four kids close in age (though only half are boys) so I can relate on some level to the kid-chaos and need for "space."  I have worked with my kids over the years on making our space work even when it wasn't ideal.  I think most people are living in homes that are not ideal.


I also have credit challenges and a strong awareness of the economy.  With that experience in mind, I'd take this opportunity now.


If in time your credit improves enough to get a loan, or if the owners are willing to accept a somewhat lower monthly payment to accommodate this, could you add a room or an addition?


You can make it work, and it sounds like the right opportunity at just about the right time.  Good luck.

post #3 of 6
Thread Starter 

Worthy- thank you for your reply :)


We are planning on potentially doing the lease option, but need to talk with the owners more to make sure it's terms we can agree with. Our goal would be to repair our credit over the next three or so years so we can finance the house and buy it from the owners eventually. I would like a home inspection, need to look into that- the house was built in 2000, is energy efficient, etc. I'm not all too concerned about something being majorly wrong with the structure/wiring/plumbing/roof/etc (compared to an older house). The furnace just got worked on and is in good condition.



If I think of my "ideal" home it is potentially a larger home on a bigger piece of land (for urban farming, or a more secluded setting). I know that if we made a move to rent a larger home or buy a different home in a few years, It would likely still not be this 'ideal'. One, we probably couldn't afford to buy a larger house on more land in our area right now, and two, Renting a larger house that is a few hundred more than where we are now are often sprawl homes with really small, grass lots as yards, or old homes that have a lot of issues. If we owned the house we live in now I would feel differently about it because I would be free to tear up more of the yards for gardening & such! Or be able to alter things. One thing I love is that our garage is insulated and drywalled, it makes a good shop and I presently have a screen printing setup in there and the kids have some art stuff. I think there are a few potential ways to make an addition on the home, perhaps when the boys are older, or there is plenty of room in our yard for something like a small yurt (12'x'12 or 16'x16') which I have always wanted, it would give us some extra alternative space :) Another plus is that we don't live in a neighborhood coalition area- That is one of my major NOs as far as buying a house goes- I don't want anyone telling me how my house can look or how i can or can't alter it or have an front yard garden etc. 



Even if it doesn't work out, it opened up a really good discussion with me and DH, so now if we don't decide to do it for some reason (unless the owners decide to sell anyway etc) we are going to mentally commit to living here another 3 years, just as we would if we were leasing to own (as our goal to repair our credit/get financing). He was adamant about moving this summer, because of the "space" issue, and after looking at the situation from another angle, I think he has come to realize what we actually need and the advantages etc. So yay! I'm excited to not be under the stress of needing to move this year, and can actually plan a garden.

post #4 of 6

Sounds like you have a good perspective on the situation and a really positive attitude.  I hope it works out!


Where we live now, everything is ideal except I have a very very very tiny yard.  Happens it's got good sun exposure and it's all in one "chunk" -- I won't be able to have a large garden, but I'm tackling the challenge of using the available space, building raised beds, putting in permaculture (fruit plantings), etc.  Also I have planter boxes for my porch and lots of creative ideas.  I believe I'll be able to grow a lot in my little yard.  It was definitely a BIG compromise, but in my situation (which I will not bore you with right now) the house and location and opportunity were all too perfect to pass up. 


I also think it's rare that anyone finds "perfect" -- if the house is sound and newer and energy-efficient, those things are huge.  I think you're really lucky to have this possibility.  Good luck!

post #5 of 6

I have tons of experience in this area and you are right, it can be great or a total nightmare.  In my former job, I dealt with real estate investors that made their living doing rent to own and owner financing deals.


I'll throw some random thoughts out there -


Is this a rent-to-own (where the seller continues to hold title) or an owner-financing (where you hold the title) purchase?  There are pros and cons to both.  Some food for thought -


With rent-to-own, the owners (your landlords) should continue to pay the real estate taxes, property insurance and maintenance.  Typically, a portion of the monthly payment goes to rent and a portion goes to the purchase price.  At the end of the contract, you should, in theory, have paid enough towards the purchase of the house that you could go to the bank and get a loan for the balance to pay for the house.  For easy math, lets assume the house is worth $100,000.  Over the course of 5 years you pay $10,000 towards the down payment.  At the end of five years, you "owe" $90,000 to the sellers.  Hopefully the house has appreciated a bit and you can go to the bank and get a conventional mortgage for the rest, pay off the seller and the house is yours. 


Where people get hurt in this type of scenario is when they aren't paying enough towards the down payment and/or housing prices down (or even remain stable) and they can't get financing at the end of the contract.


With owner financing, the sellers transfer the house to you and files a mortgage against the property.  You "own" it just like traditional bank financing and with this comes the tax benefits of the mortgage interest payments and real estate taxes as well as all the expenses of ownership (insurance, maintenance).  The mortgage will spell out terms, amortization and interest rates.  These deals can be good for both parties as long as the selling price, interest rate and amortization is reasonable.  Sadly, I used to see deals where the term of the loan was short but the loan amortized at 30 year so when the loan came due, the owners had very little equity built up and couldn't refinance.


Assuming the deal is good (and if they have been good landlords, chances are they are decent people) will you be able to cover the future maintenance and repair costs?  These are often far more than people imagine.  It is easy to say "we will do it ourselves" but it isn't always possible. 


post #6 of 6

A focused decluttering will be helpful no matter what you do, so I'd start there.  It may help clarify whether your space is too small or not.  We have four children under 7 in a 900 square foot house; it took a ton of downsizing to get us here, but it was totally worth it, especially as my husband was laid off for a while last year.  It seems small, but my father-in-law was one of 11 children in a house that was much smaller.


I do think it is good for each person to have a little space of their own, but it doesn't have to be a whole bedroom.

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