Be wary of scams and homeowners facing foreclosure. You’re likely to lose the option to buy the house at the end of the lease, while the homeowner or seller will risk losing the property in the end.
Rent to own offers a lot of benefits to potential home buyers. It is beneficial for buyers with a bad credit score who are not ready to buy the home right away because of a high sale price.
It is important to pay rent on time, as you will be able to boost your credit score and increase your chances of qualifying for a mortgage. Make sure the landlord reports all the payments to a credit reporting agency.
Okay, we’ve seen the benefits, but what’s the catch? The problem is that many people try to manipulate it as is the case with foreclosures. That’s why you should be aware of the scams associated with rent to own lease before signing a rent-to-own contract and beginning your homeownership journey.
Do Banks Rent to Own Foreclosure Homes?
No, they don’t. It is not possible to rent to own foreclosed homes from the bank. That’s because rent-to-own arrangements aren’t in the best interest of the banks.
A bank-owned property can’t be leased through a rent-to-own program. The banks tend to assign off-the-books properties to asset managers before they come to realtors and hit the market. This is a very strict process and it is a cash sale in most instances regardless of the purchase price.
When a home gets foreclosed on by the bank, it’s considered an REO (real estate owned) property. Bear in mind that the bank aims to recover as much as by recouping foreclosure losses.
If you’re interested in getting into an REO but have a poor credit score, you should try to find a real estate investor. To meet the local investors, you need to consider joining real estate investment clubs in your country. Attending local foreclosure auctions is also a good idea.
Can I Rent to Own a Pre-Foreclosed Home?
Luckily, it is possible to rent to own a foreclosed home the bank doesn’t own yet. It is known as a pre-foreclosure in the rental world. The catch is that most foreclosure homes can’t be sold by actual homeowners.
So, just because you rent out a home in foreclosure doesn’t mean you will be able to purchase it after the lease. Having the ability to buy the home is the main reason for entering into a rent-to-own agreement, right?
The bank can take the home back before the lease runs out in the worst-case scenario. That is why many people avoid buying houses in pre-foreclosure even though they yield some great bargains sometimes.
Related: Renting to own: How does it work?
Putting a rent-to-own house up for an agreement whilst it’s in foreclosure is one of the most common rental scams. Many fraudsters cheat buyers into renting to own a foreclosed home to get money from the option fee and then disappear.
Once the lease expires, they will not be capable of transferring the title. Scammers know that, unlike naive home buyers. As an inexperienced buyer, you can easily become a victim of scams. Steer clear of rent to own properties in foreclosure.
Maybe you will come across sellers who face foreclosure and want to enter into a lease-to-own agreement. We recommend hiring a real estate attorney to review the agreement. An experienced attorney or rental agent can help you spot and avoid rental scams. Watch out for scams!