Owning a home is the cornerstone of the “American Dream,” and many people aspire to one day turn the key in a home of their own. Mobile homes offer a great alternative to traditional “stick-built” homes, and buyers can enjoy fully customized affordable housing.
In addition, renting to own a mobile home offers an affordable solution to anyone who may find saving for a down payment a challenge or for someone who wants to live in the home for a few years before buying.
What Is Rent-to-Own?
Rent-to-own is essentially a program in which a portion of your monthly rental payments goes toward the eventual purchase of the home. This is especially helpful for people who have trouble saving for a down payment, which on many loans can be as much as 20 percent of the home’s purchase price.
The rent-to-own agreement specifies which percentage of the monthly payment will be applied to the future down payment. There may even be options for you to pay extra in order to speed up the process of owning the home.
Rent-to-own contracts are becoming more popular as people struggle to make ends meet with rising home prices.
Rent-to-Own Mobile Homes – How It Works
There are several ways that you can benefit from a rent-to-own mobile homes agreement. First, there are some mobile home communities that offer existing homes that you can rent before you buy. These communities typically do their own in-house financing, and the park owner will allow you to apply a portion of the rental payment toward the down payment on the home.
In other cases, you can get a rent-to-own mobile home by working with the home dealer and arranging financing directly through them. You can choose from many options, from short-term agreements to ones that last for up to five years.
What Credit Score Is Needed To Buy A Mobile Home?
As with any loan, the amount you can borrow and the credit score you need to secure a loan will vary by lender. To qualify for the lowest interest rates, you will need a credit score of at least 700. With a score of lower than 700, you can still qualify for a loan, but you will not be eligible for the lowest rates.
The Federal Housing Authority (FHA) offers loans to buyers with scores as low as 500, but most lenders will only loan to borrowers with scores higher than 500.
With a rent-to-own option, you can get the home of your dreams and enjoy it while you work on raising your credit score to get the highest rates. These programs are desirable to buyers with lower scores who may need time to work on credit repair in anticipation of getting a mortgage.
Is It Hard To Get Approved For A Mobile Home Loan?
Mobile home loans are slightly more difficult to get approved for than traditional home loans, but lenders work with almost all borrowers. Because mobile homes typically decrease, it is harder to qualify for a loan instead of traditional homes that usually increase in value.
In addition, lenders typically look for higher than average credit scores, consistent income, and sufficient down payment. This criterion varies by lender, and some lenders will accept buyers with lower credit scores, income, and down payments.
While it is harder to get approved for mobile home loans than traditional loans, it is not impossible. Those that have trouble qualifying will find renting to own a viable option for obtaining their new home.
How To Buy A Mobile Home And Land
There are several ways to buy a mobile home and land, and each one depends on your location and preferences. The first option is to buy the land and then find the mobile home to install on your existing property.
This is often easier for people who live in rural areas where land is abundant. There may be zoning rules in certain municipalities that determine whether you can install a mobile home on a vacant lot, so buying a piece of land first will ensure that you will have a spot to install your new home.
The second way to secure land is to find a mobile home dealer in mobile home parks who offers home and land packages. This will bundle your property and land cost, allowing you to make one monthly payment for both. These home and land packages often save you money over buying them each separately, including prepping the land for the mobile home installation.
Some companies will loan you money for both the home and the land, so it pays to shop around to ensure you get the best loan for your needs. In most cases, your landlord is essentially starting a savings account for you, taking a portion of your savings to apply to the purchase of the home later. This is beneficial because it keeps you on track toward your goal.
Things To Consider When Renting To Own
One of the major benefits of renting to own your new home is that you get to lock in the price of the property while still renting. This means that instead of renting for years while you save up for a down payment, you can take advantage of today’s pricing rent-to-own contract and lock it in until you are ready to buy.
When you start your rent-to-own agreement, you are also locking in the interest rate now. So even if the interest rate or the price goes up in the future, you will still be able to lock in today’s low rates.
Another major consideration when renting to own is the percentage of the rent that will be applied to the down payment. This will largely determine how long it will take for you to buy your home. The larger the percentage of your monthly rent that is applied to the down payment, the sooner you will be able to move into your new home.
Your lease agreement will spell out the terms of this arrangement, but you can often negotiate with the mobile homeowner if the terms don’t work for you.
It is also helpful to note that in many cases, your rent will be higher than the market rate when you are renting to own. This higher rate will allow your landlord to apply more of your rent to the down payment, helping you build equity faster.
Is Rent-to-Own Ever A Good Idea?
Rent to Own is an excellent idea for anyone who is looking to get into the mobile home of their dreams without having to worry about the time it takes to improve credit or save for a down payment. Rent-to-own allows you to use your rent payments to finance the purchase of a home.
Rent-to-own is best for those with less than perfect credit or people who need a little extra time to pay off other debt or save for a down payment. Many people use this option and find that it allows them to lock in the best rates while building equity in their homes.
What Is Great About Rent-to-Own Mobile Homes?
Another advantage of rent-to-own mobile homes is that renting one gives you the benefit of living in your home full-time before committing to a mortgage. In traditional buying situations, you tour the home a few times before ultimately making the purchase, never having the chance to live in it before you buy.
When you rent to own, you can get to know the neighborhood, experience the day-in and day-out of living in the home, and truly get to know the place before buying.
Rent-to-own mobile homes are inexpensive when compared to traditional homes. For example, instead of a $300k price tag, you can own a brand new home for less than $100,000 in most cities. Also, like traditional homes, you can customize your mobile home and configure it exactly how you want it.
Disadvantages Of Rent-to-Own
While there are many great reasons to rent-to-own your mobile home, this arrangement has some disadvantages.
A Pre-Set Rental Requirement
One of the significant disadvantages of rent-to-own agreements is that there may be a set period of time that you have to rent before you can buy.
If you enter into a two-year agreement and decide that you’re ready to buy in the first year, you may not be able to end your rental agreement and buy sooner. Another disadvantage is that you may not be able to control the amount of the payment applied toward the purchase.
If your initial agreement applies $100 a month toward the down payment and you find that you can now apply $200, you may not be able to adjust the agreement.
You May Need More Time
In general, most rent-to-own agreements allow you up to two years to buy the home. If, however, you are still not ready to buy by the time the contract ends, you may lose the equity you built up in the home.
If this is the case, talk to the mobile homeowner about your financial situation and find out if they would be willing to extend your rental agreement. Conversely, you may want to end the contract and find out that you can’t.
For example, if you find a property you like better, but you’re still in the rent-to-own property, you may not be able to break it without a breach of contract. In addition, you may lose all of the equity that you built up in the current property.
Finally, if you end the agreement before the end of the term, you may lose your original option payment, and you may have to pay a termination fee.
You May Be Renting The Home Only
Typically the rent-to-own agreement includes the home only, and you have to pay separately for the land. If your landlord manages both the home and the lot rent, your landlord may opt not to renew your lot lease.
For example, if your rent-to-own term is for two years and your lot lease is for one year, your landlord could opt not to renew your lot lease. This can create a sticky situation in which you are locked into one lease while having to renew another.
Be sure that your rent-to-own term also covers the term of your lot lease.
Rental Payments Are Often Higher
Rental payments are typically higher for rent-to-own agreements than traditional leases. This is because the landlord still has to earn a profit after assisting with your home purchase and down payment.
Read your contract carefully to avoid any surprises. Calculate how long it will take you to save the right amount of down payment in order to purchase your home.
Unlike traditional homes that go up in value over time, mobile homes typically depreciate. So if you are locking in a home price today, the house will be worth much less years down the road.
Why Rent-to-Own Homes Are Bad
There are many critics of rent-to-own home agreements. One of the major drawbacks is that if the owner gets foreclosed on, you lose everything—the property and the equity you built up.
In many cases, there is a large upfront fee required to attain the property, and you may not even qualify for a mortgage at the end of it. In many cases, renters move into these homes without an appraisal and are unable to get a mortgage later.
Banks will not lend more than the home is worth, so be sure to get an appraisal prior to signing a contract for a home. In general, you can make a rent-to-own situation work to your advantage by making sure you understand the complete terms of the contract before entering an agreement.
When it comes to getting into the new home of your dreams as quickly as possible, rent-to-own homes are an excellent way to start owning while still paying rent. Whether you need extra time to save for a down payment or you simply want to improve your credit before buying, renting to own a mobile home is a good choice for many buyers.
However, everyone’s situation is different. Be sure your desire to own your own home isn’t clouding your judgment. Do the math and see if renting to own is best for your financial situation or if you should consider other alternatives such as renting or saving up to purchase your own home.