Rent to Own vs. Traditional Mortgages

Need an FHA Loan?

It’s no secret that most people seek out rent-to-own home options over traditional mortgages because of credit issues: either their credit is fair or poor or simply just unestablished. Depending on the housing market, banks may be very strict with their lending, leaving a lease option as the best choice. So what are the major differences?

With RTO, No Banks Are Involved

Rent to Own homes are arranged without any bank involvement. Many people may use a lawyer to protect themselves or a realtor to have good counsel. But, there are no banks or bank loans involved. Rent to Own homes are often referred to as owner financed homes, because the lending falls on the owner/ seller. Now this is where it gets a little tricky.

Are You in for the Long Haul?

RTO transactions are usually 24-36 month agreements where the party interested in purchasing the home essentially “rents” it from the owner. Their monthly payments go towards the down payment of the house. Once the agreed upon time has passed, the renter can then choose to purchase the house. They typically complete the purchase by using the down payment built from those “rent” payments and a bank-backed loan, after spending time fixing or establishing their credit.

In Conclusion

Basically, if you're uncertain about committing to the home buying process, but now is the time to get started with the process of readying yourself, RTO is for you. If your credit is great, you have a down payment, and you're sure you want a long term investment, a traditional mortgage will suffice. Now you know the major differences in the two home buying options.

Need an FHA Loan?