Rent to Own versus Seller Financing

[Liz Rogers]

Hello everyone!

Can someone explain the difference between rent to own and seller financing? On the surface it sounds like the same thing... I believe the difference is with a rent to own the renter gets financing from a bank to purchase the property, and with seller financing the seller is the bank. Is that accurate? Just want to make sure I understand them correctly. 

Thanks for the clarification!

Liz

[Frank Woodin]

Usually rent to own is an agreement on a sale price when you sign your lease with the property owner.  The property owner will "credit" you a certain amount of your rent each month that can be used as a down payment when you purchase the house from the property owner.  The title in case of a rent to own situation stays with the property owner or landlord.  It is a hybrid of renting the property with the intention to purchase in the future usually with a previously agreed upon price.  So you might get a "credit" of $200.00 per month that you can use as part or the whole down payment at the time of your agreed upon purchase.  So in two years you would have "saved" via the monthly credits $4800.00 that could be used as a whole or partial down payment on the purchase of the property.

Seller financing you (the buyer) actually purchase the house from the owner and pay the owner as you would a bank (if they carry the full purchase price).  Usually (but not always) is seller financing at a higher rate than a normal mortgage would be.  The title will transfer to you (the buyer) at the close.

The main distinction is that in rent to own you don't technically own the property if you are the rent to own renter and in seller financing you own the property as soon as you close on it like any normal house purchase would happen.

Hope this helps!