Rent-to-own agreements and or sales that take place between a tenant and landlord have special FHA Guidelines. Often times, when someone moves to our area with a short sale, or previous forced foreclosure in their past – they will rent a home here until their “waiting period” is over.
If you are in this situation, and plan on buying a home under a rent to own scenario, there are different rules for different types of loans. All Government loans are popular, because of their low downpayment requirements. VA has no “formal” guidelines for this scenario, and neither does USDA- however, most Underwriters follow the FHA Guidelines for all Government loans in a lease to own scenario.
The appraiser will determine the fair market rent for the property. Any money paid ABOVE the fair market rent will be used as a credit towards a future downpayment. So, if the appraiser says the fair value rent for the home is $1000, and you pay $1500 a month – $500 for each month you paid that could be paid by the Seller as Downpayment for you at closing! [Read more...]