RENT TO OWN VS OWNER FINANCING:  THE DIFFERENCE

Rent to own and owner financing are two unconventional but lucrative ways to purchase your next property. When it comes to home financing, it is easy to confuse a rent to own transaction with owner financing. Both transactions offer solutions for people with bad credit who are unable to get a conventional mortgage. Although they are similar in some ways, there are key differences between the two strategies. Rent to own provides buyers with the option of test-driving the property before buying it. Owner financing, on the other hand, allows them to outright purchase the investment property (without going through a bank).

What Is Rent to Own?

How does rent to own work? With rent to own real estate, the buyer or renter has the option of buying the home at some point in time in the future. Until then, the landlord is the real owner of the home and is responsible for mortgage payments on the property. Moreover, the owner’s name is on the deed. The buyer, on the other hand, can purchase the property but does not have the obligation to do so. In addition, the deal can potentially fall through without the buyer ever owning the property in the first place.

With rent to own homes, the purchase is classified as a lease-purchase.

What Is Owner Financing?

So, now that we have defined rent to own, you may be wondering how does owner financing work? With this financing option, property ownership transfers from the owner to the buyer. In this case, the buyer becomes the new owner upon closing. In an owner financing contract, the owner acts like a bank by offering to finance the purchase.Remember that in the case of a rent to own transaction, the buyer makes rent payments that may or may not apply to a purchase in the end. In contrast, with owner financing homes, the buyer pays off the loan after the purchase actually happens. This option is especially great for people who have bad credit or not enough credit to qualify for a conventional mortgage.