Have been able to finance one rent to own deal in the last several years.
Typically speaking the borrower will still be a high ratio borrower when the term is up and it is time to purchase, and mortgage insurance providers will look at your rental portion and scrutinize it to see if they agree with the parties what portion went towards the down payment.
For example, you rent-to-own a 2 bedroom condo for $1,200 a month and state $500 is going towards the down payment and $700 is rent. Mortgage insurance providers will not recognize the $500 towards the down payment if market price for rent is $1,200.
You also can't make an agreement up at the end of the term, you need to have one executed the day the rent-to-own starts.
Quote:
Originally Posted by ken0042
Isn't the sale price pre-determined? In that case, if the market goes up, the tenant wins. If the agreed upon price is $400k, and then after 3 years the house is worth $500k, they would be ahead.
However I do agree that in many cases it is a form of predatory financing.
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Alternatively, if the market drops, then the buyer likely won't find financing because the loan to values won't jive with the updated property value and the deal will likely be dead for the purchaser even if the agreement was rock solid.