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How does a rent-to-own transaction work?

If you have heard about renting to own a home, and are not sure what it is or how it works, then read this blog. Lets start by saying what it is not: Renting to own a home is actually a misnomer. It implies that you rent for a period of time and then you own the home. This is not the case. Renting to own a home is a lease with a difference – you have the option to buy the home at any time during your lease period.

The Difference Between Renting And Renting To Own

Rent Rent To Own
Rent money is lost forever. A portion of your rent goes towards your down payment or the price –
kind of like a savings account. This is called a rent credit.
Your landlord does not want to sell the home. You don’t so much have a landlord as you have a seller whose intent is to sell the home to you.
Purchase price is never discussed, since the home is not for sale. The price you will be buying the home for is set at the beginning of the lease in the form of an option to purchase.
Landlord is responsible for all repairs. You are responsible for the repairs since you are a home owner to be. This is the house you want to buy and therefore you are treated like a home owner.
Rent is set at market rates Rent may be slightly higher than market rates since a portion of it is going toward the down payment or reducing the sales price. This allows you to build equity while you are getting ready to buy.
A security deposit, first month’s rent and sometimes the last month’s rent will be required to move in. The security deposit is refundable in case of no damage to the home. A down payment, called “option consideration”, will be required. This will lock your option to purchase on the property, and will go toward the purchase price as a down payment. This is not refundable if you choose not to buy by the end of your lease. First month’s rent, and sometimes a security deposit will also be required.

When Does Renting To Own Make Sense

If you are tired of renting and want to purchase a home, but your credit, income situation or other factors will not allow you to qualify for a home mortgage right now, then renting to own is for you. If insufficient credit is holding you back, then you need some time to fix it. By doing a rent to own home transaction, also known as a lease option or lease purchase transaction, you get to live in the home you want to buy right now while you work on getting your credit fixed.

When You Should Not Do A Rent To Own Home Transaction

There are times when entering into a rent to own home transaction is a bad idea. You don’t want to lose your option down payment because you were not prepared to purchase the home. Here are the top five situations when you should not be doing a rent to own home transaction

If you don’t have the discipline to change your financial habits if bad credit is the problem
If you are not prepared to do what it takes to get ready for a mortgage eg. credit repair, setting up trade lines, paying rent on time
If you are not sure that this is the right home for you
If you don’t know how long you will stay in this town because of job or family reasons
If you don’t have a steady income. Your mortgage will not be approved without a stable income source

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Buying a home: mistakes, tips, benefits

Glad to have you back with me.

Quick Question: Are you looking to buy a home? Do you own a Home? Do you own a few homes? Do you sell homes? If you answered “yes” to any of these, this Blog post could be a huge help in meeting your goals.

We all know the “American Dream” about homeownership, and the pride that comes along with it. As Jonathan Slappey writes in his story, “Top 5 Reasons to Buy a Home in 2012″, this dream is “a very feasible aspiration for 2012.”

One of the “reasons” that Slappey lists was Appreciation, and in combination with the low current prices and historically low mortgage rates, he writes that you can “almost ensure your home’s appreciation in the future” (He adds that “many foreclosed homes are available for a fraction of the original cost.”).

Before jumping in, potential homebuyers need to plan, and then plan again, and then again.

“Property insurance, taxes, homeowners association dues, maintenance, and higher electric and water bills are some of the costs first-time homebuyers tend to overlook.”, writes Polyana Da Costa in her story titled, “Common mistakes first-time homebuyers make”. Taking one step back, Da Costa writes that “Home buying doesn’t begin with home searching. It begins with a mortgage prequalification”. Ed Conarchy, a mortgage planner at Cherry Creek Mortgage in Gurnee, Il, was quoted in Da Costa’s story, in which he said that, “You get preapproved, and then you find a home”. so that you’ll “financial decision versus an emotional decision”. Sound advice.

Now, about those expenses Da Costa listed above; If a homebuyer spend their entire savings for the down payment, closing, etc, then what happens? Conarchy says that this is “one of the biggest mistakes first-time homebuyers make”. Additionally, in the same story, Da Costa warns that “Any new loans on your credit report can jeopardize the closing”, since lenders pull credit reports prior to the closing to “make sure the borrower’s financial situation has not changed since the loan was approved”.

Getting back on course, some other reasons Slappey listed as positives for buying a home this year were tax-related. “Property Tax Deductions” are a major benefit, as Slappey writes that “real estate property taxes for a vacation home and first home are fully deductible”. Another reason, “Preferential Tax Treatment”, which he says that since Capital Assets are given preferential tax treatment, this would benefit you if you own the home over a year and you “receive more profit than the allowable exclusion after the sale of your home” (the profit will be considered a Capital Asset).

On the topic of Taxes, the average first-time homebuyer may not be aware of the ins and outs, since they might be buy-and-hold for many years, a real estate investor would be more aware of tax incentives. In the story, “Tax incentives and tax deductions for real estate”, Iylce Glink and Samuel Tamkin write that “Real estate is one of the few businesses in which you can accumulate wealth, buy and sell properties repeatedly and never pay any federal income taxes if you follow certain rules”. They add that by using certain depreciation rules, “you can make money from renting properties and create a scenario where you might make a great amount of income yearly but pay no federal income taxes on that income”. This, however, is far outside the scope of this particular Blog post, albeit quite interesting.

“Equity Building”, which Slappey calls a “new trend being used by some homeowners”, basically means that homeowners can/do add money to their monthly payment to pay it down faster. The result is a shorter home loan length, which means owning their home faster, along with some additional benefits.

The final reason Slappey listed as a reason to buy a home this year: Pride. An example he gives is blasting your music as loud as you want! “No matter who you are, homeownership is a purchase, commitment, and journey that’s sure to bring you pride”, says Slappey.

Do you agre

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I’m unable get a mortgage. What are my options?

Over and over we hear that it is tough to get a mortgage. If you can’t get a mortgage, what are some other options. What if you want a home, but don’t want a mortgage?

“It’s getting more and more difficult to qualify for a traditional mortgage”, writes CA Hagy in an article titled, “Three Alternatives to a Traditional Mortgage”. What are some reasons why you might be declined? Hagy names a few possible reasons, i.e. a foreclosure in your past, inability to prove a “decent cash flow”, and self employment resulting in “irregular income?”.

If you fall into one of the categories mentioned above, you’re not alone. Hady points out a few mortgage alternatives that might help you meet your goal(s).

One option is to go the route of “Seller Financing”, in which the “current homeowner offers to sell you the house”, and you make payments to them but “they continue to hold the note until you have paid off the home”. Hagy says that for a homeowner that cannot find buyers due to the tight lending situation. Seller Financing may be a “feasible option”. The seller basically becomes the lender, and an agreement is drawn up with the full details of the transaction.

“Borrowing from a Self-Directed IRA”, writes Nagy, is “typically designed for investors who want to buy a home but don’t have the upfront cash to make it happen”. As defined in the article by Nagy, “A self-directed IRA is somewhat like a Roth IRA or a traditional IRA”, however, it’s more flexible, For example, the IRA can invest in real estate, etc, but the “main catch”, as Nagy calls it, that the IRS “does not allow you to use your own account or the account of a relative or business partner”, thus, you “cannot use your own self-directed IRA to purchase a home. But you can use the money from another person’s self-directed IRA if they are not related to you”. Confused? Nagy says that there are many investors “who will allow buyers to use money from their self-directed IRAs as an investment deal”, and the investor would “own an interest in the property”, or, the investor can simply “loan the money like a regular mortgage”.

The other option, “Leasing or Rent to Own”, is something you might be quite familiar with, especially if you are a frequent visitor on our website. In a nutshell, the buyer can rent a home before actually purchasing it. The rent to own arrangement, which is also referred to as lease to buy, lease to own or a lease option, is one in which the buyer has an option to buy the home at a specified price within a specified period of time. This option would also benefit a seller unable to find qualified buyers, and would certainly benefit buyers who need time to save for a down payment and to “improve their credit score”, says Hagy.

Let’s stay on the topic of Renting and Owning for a moment.

“Sometimes it is better to rent than to own”, writes Leah Ingram, in her article, “Rent or Own a Home?”, who admits that “in today’s real estate market it’s not surprising if people are a bit gun shy about buying or owning a home.” and she provides 3 tips to help you decide on renting vs buying.

Ask your self; Do you have documented income, a good credit history, and a steady income? These are some important items to have in order to buy a home, in the first of three tips, courtesy of Jessica Edwards of Coldwell Banker Real Estate, within the article from Ingram. Edwards adds that if your income is unreliable, “getting tied down to a mortgage may not make the most sense financially”.

The next tip is to make a “timeline” of how long you will stay in the home; if it’s just for a couple of years, you are “less likely to see a significant financial return on your investment”, says Edwards, and says that if you stay under 2 years and sell it, “you may find yourself having to pay capital gains taxes”.

“Crunch the numbers”, says Edwards, in her third tip. Add up the mortgage payments real estate taxes, insurance payments, maintenance costs, etc. and compare these costs of ownership vs. the cost of renting (monthly rent and average utilities).

Ingram says that “buying doesn’t always make sense and neither does renting”, and suggests speaking with a “real estate expert, your tax person, and a financial professional” before deciding to rent versus buy a home.

What are your thoughts? We’d love to hear

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Arizona homes – a great investment for home owners

Buying a home in Arizona may be a good investment for you because of the large amounts of foreclosures. While this may bring property values down in the short term, investing in a well-built, new, cheap home until the housing crisis is over could prove to be lucrative. If you’re looking in Arizona you may want to consider Arizona rent to own homes. These types of deals allow you to haggle with the seller and agree upon a price for the house, a price for rent and how much you will put down towards purchasing the house each week or month. You can move into the house, trying it out before you buy it, and at the end of the lease you can choose to pay off the rest of the house or not to buy it. This option allows you to avoid taking out loans and pay for your new home gradually. If property values decline greatly, you may even be able to further haggle with the seller to lower your price, matching market value.

The first ancient people arrived in what is now Arizona between 16,000 and 10,000 BC. Some Native American cultures prevalent in this southwestern region were the Apache, the Hopi and the Navajo. Spanish colonists began inhabiting the Arizona area in the 1600s, along side Jesuits and Franciscans who came to convert the Native Americans. The Spanish set up Apache peace camps to try to stop the common Apache attacks on colonists. In 1821 Mexico emancipated itself from Spain, making Arizona Mexican. The Treaty of Guadelupe Hidalgo gave Arizona to the United States in 1848, Arizona becoming a state in 1912, the same year it gave women the right to vote, eight years earlier than the rest of the country.

Those living in Arizona enjoy a desert type landscape and climate. Typically, fall and winter months are cool while summers are consumed by dry heat. Mountains and plateaus cover over half of the state, and both residents and tourists come to see the famous Grand Canyon, one of the seven natural wonders of the world. Other sites to see are the The Barringer Meteorite Crater, The Mogollon Rim, the Navajo Nation reservation, Fort Apache Historic Park, the Pheonix and Wildlife World Zoos and the Tohono Chul Park.

In June 2011 CNBC called Arizona the third worst state for forclosures, following California and Nevada. One in every 273 households was filing for foreclosure, most foreclosures being in the central southern regions. Not too surprisingly, the unemployment rate remains higher than the national average, resting at 8.7% in November 2011 when the national average was 8.6%. However, that’s a great decline from October 2011′s 9%, meaning that perhaps Arizona’s economy is regaining momentum. Arizona has the 21st largest economy in the United States, its gross state product larger than the economy of Ireland or Finland. The Arizona state government is the state’s largest employer, followed by Wal-Mart. Major industries are banking and retail.

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The FHA Streamline Refinance Program

Are you home owner in Phoenix, AZ who currently has an FHA Home Loan?

If so, you will want to read below!

Dan Green, a mortgage originator with Waterstone Mortage and author of the fabulous blog, The Mortgage Report, wrote a terrific (and truly important) piece, FHA Streamline Refinance Changes: Banks to Stop Verifying Income, Job, and Credit.

Go. Read it.

In  nutshell, if you have an FHA mortgage, you can refinance it.  Even if you are underwater (owe more on your mortgage than the house is worth. A likely scenario in the Phoenix area).  Even if you have lousy credit (though you can not have had any late mortgage payments in the last 12 months).  No job, income or credit score verifications are done. No appraisal is conducted.

Almost sounds too good to be true, right?  Almost sounds like exact type of financing that got us into this mess to start with…

But, like Dan says, it’s the FHA that is on the hook for these refi’s:

Remember : The key idea here is that the FHA doesn’t actually make loans to homeowners. Rather, it insures the banks that make loans to homeowners. In this way, once a homeowners has his mortgage in the FHA’s “system”, so to speak, the FHA is on the hook for that loan no matter what its rate or loan size.

This is why FHA homeowners are not allowed to increase their loan balances with an FHA Streamline Refinance. Raising the loan size would raise the FHA’s exposure to default.

This is why the FHA Streamline Refinance skips job, income and credit verifications. It really doesn’t matter if someone lost their job; or has a 500 FICO — the FHA is still on the hook for that loan.

It’s in the FHA’s best interest to put all FHA-backed homeowners into the lowest mortgage rates possible because with lower payments, in theory, come fewer defaults, which means fewer claims.

Is Your Mortgage an FHA Loan?

Check your loan papers. Call your lender. If you’ve been turned down in the past for an FHA streamline refinance, or never tried to get one because of your credit or your home value, try again. The doors appear to be wide open.

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