So, you’ve found a house to rent to own. The agreement was if you live in the home for 3 or so years, you can apply for a mortgage loan and become the owner with a smaller down payment and a better credit score. You’ve made the monthly payments on time through thick and thin. You have an excellent relationship with the property owner. Everything seems to be going according to plan.
However, when it came time to buy the property at the end of your lease, you were denied a mortgage loan by a bank or another private lender. It’s your worst nightmare. It’s crunch time and you’re out of luck and locked into a home that you can’t afford to buy and may be looking at eviction or legal action, not to mention losing all of what you’ve paid upfront and the monthly percentage toward a down payment.
Remember this: if you don’t want to be surprised, you can keep a close eye on your credit score so you’re not surprised. Click here to check it now (and as often as you need to). Also, if you want to help hedge your bets for qualifying, you can actively use a proven credit repair method– click here to learn more about that.
What if You Don’t Qualify to Buy After Your Rent to Own Lease?
Firstly, if you’re reading this but don’t know if you even qualify to get into a rent to own house, you should click here to see what your options are– for many, they’re excited and surprised that they qualify.
Now, for those already in a rent to own situation (or considering one) here are some common reasons why a rent to own home buyer may not qualify for a mortgage at the end of the lease agreement:
- Missing Rent: A one-time missed payment can void the entire contract with the property owner or the intentional seller. It may lead to fees at best but eviction and a lawsuit at worst.
- Low Credit Score: You weren’t able to build enough credit to qualify for a loan. It is essential that while you rent-to-own your home, you work on building your credit through paying off debt, living within your credit limit, and diversifying your loan portfolio. If you were not able to build your credit or it went lower, it is likely that you will be unable to qualify for a mortgage and may even face repercussions from the seller as void of contract. Unless legally agreed upon, the landlord or seller may not be obligated to report on-time payments to the credit bureaus, so even if you may have made all of your payments on time, there may not be any record of it.
- Down Payment Cost: You still don’t have enough money for a down payment. Although a benefit of rent-to-home programs is an agreed-upon percentage or portion of your rent that goes to the eventual down payment, it has to be stated in the contract. A landlord could be pocketing the extra money and not putting it toward the mortgage or in an escrow account that would lower the down payment.
- Unforeseen Circumstances: Life happens and it happens fast, many times out of your control. You may have changed jobs or got into a car accident. Or the owner of the house may have defaulted on the mortgage loan or taken out a home equity loan on the property before your rent-to-own period ended.
- Housing Market Changes: The housing market may have fluctuated since the start of your rent-to-own period. It is an advantage when it goes up, but could be a disadvantage if the market stalls, goes down, or even crashes. But you’re locked into the agreed purchase price no matter what.
To answer the question – if you don’t qualify for a loan after the lease period is up – it does not mean an automatic surrender of ownership as long as you didn’t fall behind in payments. If you have kept up with monthly payments, have had little to no problems with the property, and have shown a positive rental history with the landlord, you may be able to convince them to let you continue renting rather than make a purchase.
Let them know that you have lived in the home for a long time and would love to stay there but need to extend or re-enter the rent-to-own purchase contract for a stated amount of time. Though it may not work out in the end, you may be able to negotiate a way to avoid moving and going to court, maybe even staying in the home that you love.
Again, we highly recommend that you see if and what you qualify for when it comes to rent to own homes. Click here and get the process started, and begin your journey to becoming a homeowner today.