Young, and happy couple together hold a set of keys to their new home.
February 20, 2020

Rent-to-Own Mobile Homes

Rent-to-Own Mobile Home agreements are less common than normal purchasing agreements when it comes to buying a new mobile home.  Rent-to-own contracts can be very beneficial for the home buyer…or very, very bad.  Like most contractual agreements, you want to work with people you can trust and know the details of what you are getting into.

How Does Rent-to-Own Mobile Home Agreements Work?

Picture of happy couple holding each other, smiling at the camera. Trees are in the background a bit blurry.

 In a normal rent-to-own agreement, you rent a property for a certain number of years (typically around three years), then you get the chance to buy the property for a pre-arranged price.

Most people who get into a rent-to-own agreement want to buy a home, but circumstances like a low credit score or no down-payment prevents them from getting a home loan today.  Those that sell in a rent-to-own agreement like how they can lock in a buyer now, sometimes at a premium price, versus selling the home at some unknown time in the future.

Often the rent-to-own agreement stipulates a rental time period, the rent amount due monthly, how much of that rent amount can become a down payment at time of purchase, the agreed-on purchase price, and any limitations to the agreement.  This is a really simple explanation, and every agreement can be different, so be sure you have a lawyer explain all the details of the contract including any “gotchas” that might trap you in a bad place later on.

What is Great About Rent-to-Own Mobile Homes?

Most people pursue rent-to-own homes when they have no down payment and a very low credit score at the same time.  What rent-to-own does for you is it gets you in a home as easily as entering a rental agreement, but you get three benefits on top of the rental agreement. 

The first benefit is at the end of the rental portion of the agreement, you get to buy the home outright for a pre-negotiated price that is normally resistant to housing price increases that occur since the beginning of the agreement.  Second, a portion of what you paid in rent is considered a part of your future down payment.  The third benefit is, if you make improvements in the home that increase the value of the home, it will appraise higher meaning you will need less cash for a loan down payment when the rental portion of the agreement ends.  Just a note, some agreements do not allow you to complete any remodeling during the rental time period, so don’t assume you can make home improvements.

Rent-to-own agreements work great when you have two conditions.  First, you can perfectly trust the person selling the home under the agreement.  Second, your financial situation is better at the end of the rental period meaning a bank will give you a loan for the home when it is time to move from rental to ownership.

What are the Dangers of Rent-to-Own Mobile Homes?

If things go wrong, you could end up getting kicked out of your rent-to-own dream home with nothing to show for it, so let’s talk about some of the dangers of rent-to-own homes.

At this point, we will mention paying a lawyer to look over the agreement, as it will be worth every penny.  Make sure you have a lawyer clearly explain all of the details of the contract.  You cannot afford a rent-to-own agreement that is out to take advantage of you.  States have a lot more protections available to people with home mortgages, but there is not a lot of government oversight on rent-to-own agreements, so you will likely have few options if you enter into a bad agreement.

You also need to verify there are no liens against the property.  A lien says that someone else has a claim to ownership of part or all of the property you want to buy.  To protect against this, complete a title search and buy title insurance.  The seller should be the only one who can claim ownership of the property you would like to buy.

Another note is that, even if you enter the agreement with someone you trust, that does not mean they will still own the house toward the end of the agreement.  Let us say you are Grandma’s favorite grandchild and she sets up a rent-to-own agreement with you.  If she passes away during the agreement, you could now be tied to the people who inherit her estate.  Hopefully they like you as much as grandma did.

Something that might surprise you is that just because you have a rent-to-own agreement that spells out how much goes toward the down payment, that doesn’t mean the bank has to agree to your terms when it comes to selling the home.  You and the seller might have done things right and the bank can change the game on you.  One example might be the bank might say the home is worth less than you thought.

Even if all the people involved do everything right, if your credit score is still very low, you become unemployed, or you don’t have the down payment you hoped to have, you won’t be able to secure a loan for the home.  If you can’t find a loan to buy the home at the end of the rental period, you may find yourself kicked out with only 15 days’ notice.  You are much safer under the protections afforded in a mortgage or chattel loan.

Again, rent-to-own agreements are not evil, but you do have to be very careful.  As we mentioned, you have less protections and more chances to run into trouble and ultimately you won’t be safe until you have a mortgage.

Your safest route is to get a mortgage loan.  We should add, before you assume your credit score is too low, be sure to talk to us to get the facts and to find out exactly what you can and cannot afford to do.

It is not magic, the low-interest rates currently available allow most people to get into a home for low monthly payments. Many people, in fact, are surprised that we can help them buy a brand-new home for less than the cost of renting a similar size home or apartment. 

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