It helps to know the real estate lingo Just don't let 'rent to zTC own' or 'buy like rent' lead to 'foreclosure'

Mailbag

November 29, 1998

Dear Mr. Azrael:

There are some real estate terms or phrases that I would like to have defined and explained in more detail. However, I would like to preface those with a brief explanation of my situation.

I am going through a divorce. My wife and I have a first and second mortgage and, while we've agreed that she will get the house (she plans to refinance both mortgages), I have no idea how soon that will happen. My credit is mediocre, at best, and I don't expect to have much for a down payment when I decide to buy a home on my own.

On the other hand, I have been working at the same employer for 10 years now, and I do not want to pay rent any longer than is absolutely necessary.

Having said that, I am wondering if any of the following may be suitable options for me:

Rent to own.

Rent with option to buy.

Owner finance.

Buy like rent.

Co-ops.

Foreclosure.

100 percent financing.

Frederick D. Longhenry

Lutherville

Dear Mr. Longhenry:

You have mediocre credit and little money for a down payment. You will still be liable for the two mortgages on the house your wife gets in your divorce. Rent to own and other options probably will not help you. You need to repair your mediocre credit, so eventually you can qualify for a low down payment loan.

Homes advertised as "rent to own," "buy like rent" and "rent with option to buy" are all rental arrangements.

The lease agreement usually sets a rent that is higher than market. The rent-to-buy lease provides that a portion of the rent will be applied toward a down payment on the house, which the tenant can purchase at a specified price.

Rent/buy arrangements can become very costly for the tenant. A default in paying rent can cause the tenant to lose the right to purchase the home.

The landlord will keep the portion of rent paid toward a down payment. The defaulting tenant will be a big loser. You should carefully review and analyze any rent-to-buy lease before you sign it.

"Owner financing" refers to a sale in which the owner agrees to take back a mortgage for all or part of the purchase price of a property. Often, owners require a down payment. They do not want to finance 100 percent of the purchase price. You may be fortunate to find a home offering 100 percent financing from the owner. This possibility may be your option to purchase a home in the near fu- ture, but you will be lucky to find this opportunity.

"Foreclosures" are sales of property at auction, due to the owners' default in paying their mortgages. Foreclosed properties sometimes can be bought for less than market value, but buyers at foreclosure sales usually need substantial cash to fund their purchases.

"Co-ops" are apartments in buildings that have elected to become "cooperatives." Purchasers can buy the right to live in one of the apartments by purchasing shares of stock in the cooperative. It is difficult to obtain financing to purchase a unit in a cooperative. A substantial cash down payment is usually required.

"Co-ops" also can refer to a division of real estate commission between the broker who lists a home for sale and another broker (the "cooperating broker') who assists in the sale of the property.

The better your credit, the better your chance of getting a loan to purchase a home. Your most sensible option may be to rent for several years until your credit improves.

Pub Date: 11/29/98

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