Rent-to-own agreements and or sales that take place between a tenant and landlord have special FHA Home Loan Guidelines. Often times, when someone moves to our area with a short sale in their background, or previous forced foreclosure, had to move for a job and have credit issues in their past – they will rent a home here until their “waiting period” is over.
FHA Home Loan Guidelines: Rent to Own in North Carolina
If you are in this situation, and plan on buying a home under a rent to own scenario, first it’s important to know that there are different rules for different types of home loans in North Carolina – and we have different laws that are specific just to North Carolina, regarding Mortgage Loans.
All Government loans are popular, because of their low down payment requirements. VA home loans have no “formal” guidelines for a rent to own scenario, neither do USDA Home Loan underwriting guidelines – however, most North Carolina Underwriters follow the FHA Home Loan Guidelines for all Government home loan approvals in a lease to own scenario.
We see these Rent to Own Scenarios often times when one partner has good income, but not great credit – and the other person has good credit, but not very much income.
In most “Rent to Own” scenarios we’ve seen, the renter is paying a higher than normal rent, and that “extra” amount is suppose to go towards the down payment when you are ready to formally buy the home. The Landlord is essentially, acting like a savings account for you.
When you apply for a mortgage, we will order an appraisal from an approved FHA Home Loan Appraiser. 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 down payment. 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 Down payment for you at closing!
What if the Appraiser doesn’t agree with the dollar amount you and the landlord negotiate as your “market rent” payment? That’s part of the problem.
The rent to own agreement must be approved by the lender. We recommend that if you are going into a “Rent to Own” scenario, you should call us BEFORE you start it.
If you are related to the owner there are additional considerations. The loan to value restriction is 85% if the parties are related, and it’s been a relatively short period of time you’ve been renting. FHA Home Loans allow a gift – so there’s really no benefit for doing this type of arrangement for a family member, simply have them give it to you as a gift?? However, if you go this route, you must have rented for more than 6 months for the additional money you paid in rent to count towards the down payment.
For NON related sales agreements – meaning you don’t have any relationship with the owner of the house except that you rent from them – FHA Home Loan guidelines state that you can make a minimum down payment of 3.5% and not have to have a minimum rental period.
In North Carolina, we are required to verify that you make enough income to qualify for the mortgage and make your mortgage payments. This is specific to North Carolina Home Loans – and in cases where folks are self employed, and write much of their income off, it can make it difficult to qualify. That’s not to say we can NOT help people who are self employed – just bring us all of your documentation, and we will figure out a way to make it work. We can often times use a non-owner occupied co-borrower in those cases.
If you’ve been renting for the last 3 years – you might qualify for the NCHFA First Time Home Buyer Program that offers a 3% down payment grant. They also have Mortgage Tax Credits available for those who meet the income restrictions and credit score requirements. In general, you will need a 640 middle credit score to qualify for the program.
If you are purchasing a home in NC, and want more information about FHA Home Loan Guidelines: Rent to Own in North Carolina contracts – please call Steve and Eleanor Thorne, 919-649-5058, or leave us a comment below – we try to answer all of them 🙂 Connect with us on Facebook or G+ we want to help you make your home ownership dreams come true!
I’m a single mother with 4 kids. I’ve been searching for a home that I can afford,based on my wages.My goals is to get my family in a stable home so that I can go back to school for my nursing licensed.My income runs about 1200 a month and my credit rating is fair. PLEASE HELP
im a single mom with 4 children and we stay in a singlewide trailor 2 bedroom. i have been looking for a house for a year and because my credit score is 550 i cant get approved. my income a month is over 2200. what can i do to get me and my chidren in a nice home!! tahnk you sooo much
Christy there are several pages on the site that help folks who are so close to being able to buy a house! Here’s some advice, because the bank can do loans for folks with credit scores as low as 580. Because these are pretty tight restrictions, I generally suggest folks run through the program on the middle of this page. MOST people I talk to with scores like yours – need to ADD more good credit. That usually means getting a couple of Secured Credit Cards. That’s because we need to add 4 or 5 months of GOOD credit to your credit file. You can always call us at 919 649 5058, and we’ll be glad to give you more tips! You can do this! It’s just like loosing weight – it just takes a little planning, and a little time – but you are on the right path and you are doing the RIGHT things for you and your family 🙂
Sandra! Thanks for leaving us a comment (sorry it took so long, I was out of pocket over the Holiday). I don’t know where you live, but in most NC counties that have Nursing Programs there is a Housing Authority. They help folks, just like you, find good housing that you can afford. The Raleigh Housing Authority (for instance) also offers Budgeting Classes. Again, depending on where you live, you might want to check with the REStore in your area. This is a store set up by Habitat for Humanity – and they help folks get into a home that they own. This program usually requires some volunteer hours (which you might not have many of with 4 kids!) but I still think it’s a program to look into. The easiest way to do that, might be to simply call the REStore near you? If you need further help – you can also call us at 919 649 5058 and I’ll try to help with resources near where you are. You are doing the right thing, working to help your family and get a better job. Congratulations on taking these important steps for your family – it can’t be easy 🙂
I am a single mom with 2 kids. We are renting a tiny apartment right now and I am looking to purchase a home for my children. My trans score is 529 & exper score is 643. My monthly income is $1000. What can I do to get a home dor my family
You will need at least 2 scores (you have 3) that are over 600 to qualify, so it sounds like you are pretty close. For most folks, it means that you need to open a secured credit card or two.
Is it possible to get mortgage financing if you have an IRS tax lien and are currently under an agreed upon repayment plan?
Yes, you will need to establish at least 6 on time payments
My wife and I have been renting this home since 2011 at 1800 a month never late never missed a payment. I earn 101k annually and wife earns 28k I also have 1780 a month VA disability. Our landlord recommended rent to own and we would rather purchase the home out right but we have a home in New Jersey that is currently rented. The owner selling price today is the same as it was 5 years ago, but we need to do something because we don’t want to move. What are my options for rent to own?
Bill where is the home? If the home in NJ is rented, you can be considered a first time home buyer. You might not have to rent, you can possibly buy the house with down payment assistance so that you have very little need for a down payment. Call us at 919 649 5058
My sister and I along with our 3 children are moving to Charlotte from buffalo, NY for work. We are moving in a couple months and trying to get into a rent to own program, hopefully with little to no down payment. Our combined income is about $2500/mo. Or about $30,000 a year. I have rented apartments my whole adult life so I’m not sure where to start. I currently have a credit score of 631. Any help or direction on where we should start would be very helpful.
Stefani, you would first want to see if you can qualify for a USDA Home Loan, as those are the cheapest payments. There are lots of areas around Charlotte that qualify for this program. You don’t have to make a down payment with this program, and the Sellers generally pay most of the closing costs… Is there a reason you want to rent to own?
Would you please recommend some mortgage companies in Greensboro. I am interested in a FHA loan.
Also, I have not decided (if approved) if I want to buy in Raleigh or Greensboro(currently work in Greensboro but want to relocate back to Raleigh). If I decide to go the Raleigh route, would it be possible to contact you to help me determine if I would prequalify?
Thank you.
We do loans in Greensboro – in fact we are licensed throughout the state, and we will be in Greensboro tomorrow. Our daughter is in school at UNCG and we have an office on Elm. You can call us at 91 9649 5058
I’m looking to buy a home though a rent to own program but I don’t know anything about the program.
Please give me some information on it.
These deals become more common when the market is slow for two reasons. First, a slow market makes it difficult for homeowners to sell their homes. Second, when the market is slow, more people struggle with low credit and saving up for a down payment. On the other hand, these deals aren’t as popular when the market is up. Rent-to-own agreements involve increased risks for both sellers and buyers, so sellers are less likely to bother with a rent-to-own agreement if they can just sell the house and be done with it.
My folks put their home on the market last weekend at $250k and had it under contract in less than 24 hours for way over their asking price.
What I’m saying is that it is harder in this market to find a Seller who is willing to make an agreement to sell you a house at today’s market price, 2 years from now… because the cost of housing is going up so fast.
What we see most folks doing is to rent a home they like, and work with us to fix credit so that they can purchase it. There are MANY no down payment programs available, so normally it’s just improving credit. Hope that helps!