First time buying a home questions?

Question

we are preapproved for the mortgage. the person we are buying from is a friend of ours. so he is giving us the option of buying the home at 220,000 or renting to own for one year which he would take off the rent we give him off the price of the house. which would make the house 200,000 to buy if we waited one year. which option should we choose?

Answer 1

this is very simple, which payment allows you to write off the interest paid?  The mortgage.  Why not take the tax benefit?  The one item I'm concerned about is your payment, are you escrowing or not?  If escrows are not included in your payment, make sure you consider that as well, but even with them, you don't write off interest from renting.  Also, did you mortgage pro run you through DO or LP?  These are the preliminary findings through fannie and freddie, if not, your pre-approval really doesn't mean that much.  If you buy outright, get your rate locked asap, the rates are squirrely to say the least.  I don't care what the GFE states, until your locked your rate can and will change, especially in this market, good luck

Answer 2

With so many homes going into foreclosure you need to be very careful to whom you are renting from.  I've heard of cases where the so-call landlord fraudulently collect a security deposit, first month's rent along with other fees and then they skip town. Not to say this will happen to you by a friend, but how do you know the rent or deposit paid  will go towards the mortgage?  If you really want this home, I would suggest buying it outright, BUT, make sure you have a Realtor help you with the transaction if you want to remain friends with this person.  Friends should never go into business with friends unless there is a 3rd party overseeing things.  Both of you should have your own agent.

The Realtor will tell you how much the house is worth based on properties in the neighborhood. (CMA) He or she will also help you with the necessary paperwork i.e. goverment required documents, home inspection, etc.

Answer 3

You are not going to be able to pay the house down that fast with a mortgage.  the only concern is him honoring that 20,000.

are you going to get all of the rent toward the down payment?  That is an amazing deal!

And do the mortgage companies honor that 20,000 as well.  They may now... but not in a year.. you never know.   what is your credit look like right now?

Over all way out the risk but if you shave off 20,000 in a year?

Do it and hope to God he doesn't default on the loan himself.

Answer 4

That depends on how much the rent-to-own payments are.

You say that a year's worth of rent payments will accrue enough to take $20K off the price over one year. So, what would the home normally rent for versus what he will be charging you?

Basically, you would have to pay an additional $1667 a month ($20K divided by 12 months) over the normal rental amount for this to be beneficial to your friend. Any less than that $1667, and it's more beneficial to you.

So, if the place would normally rent for, say, $1500 a month, you're looking at about a $3367 a month rental payment, with $1667 per month going toward your down payment.

If that's the case, can you afford that?

Also, if you change your mind, rent-to-own agreements usually stipulate that, should you change your mind or not be financially able to complete the deal next year, the seller is not obligated to pay you back all - if any - of your "deposit" money (this is stipulated in the rent-to-own agreement).

Also, are you sure you'll be preapproved by next year? Are you sure the friend won't let the house go into foreclosure (and keep your money)? Will inteterest rates (which determines your monthly affordability) be up significantly next year?

I say, if you like the place, buy it now. You can then immediately start getting the mortgage interest and property tax deductions off your taxes and your deposit money will not be in jeopardy. Besides, with the money you save on monthly payments (mortgage instead of an inflated rent payment), you can put that money away or invest it in something else.

Answer 5

If you are going to pay $975 for a year, that is not going to take $20,000 off the price, that is $11,700.

Is it worth it?  Who knows?  It depends on the fair market value for the house, and what the terms of this agreement are.

Deals with friends and family have ways of going sour in a hurry, make sure you have your attorney review the agreement before you sign anything.