So as I may have mentioned, I am soon to leave the Stately McMegan McMansion for a shared house. One of the things you really notice on Craigslist right now is the number of ads bellowing "No credit check".
These are not, as far as I can tell, a response to the notion that everyone has suddenly tanked their credit because of the crisis. Rather, they seem to be pretty much entirely attempts to entangle people in rent-to-own schemes.
I don't know enough about rent-to-own to say whether it is ever, or never, a good idea. But it's pretty much never a good idea to apply for something like a lease that advertises no credit check. The adverse selection problem is enormous; the only people who apply are people with stunningly awful credit, or the very, very ignorant.
The supply of people with stunningly awful credit has probably gone up somewhat, but not enough to account for the explosion of no-credit-check ads, which seem to be about 20% of the total, at least in the price range that my housemate and I are shopping for. But the supply of unsellable houses has ballooned, even in the relatively insulated DC area.
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It's kind of like the "NO MEDICAL EXAM!!!" life insurance for old people.
By the time I'm old, I hope to have no dependents, or at the very least, enough savings that they can afford my funeral.
I'd be very cautious about who you rent from right now. There are a lot of rental scams going on, where a person takes your deposit and first months rent (from multiple people usually) and then skips town. They are usually the too good to be true type deals, since that's how they pressure people into giving them money so quickly. People are also renting a house they own, but it is going to be foreclosed on. You could end up paying 5-6 months rent and then have a Sheriff knocking at your door. Most of the time it's difficult to get your deposit back. You can probably get the bank to give you money to vacate quickly but its still a hassle.
My favorite bar in the Twin Cities ( http://www.pibarandrestaurant.com/ ) got their space on a lease-to-own two years ago.
In spite of being a popular pillar of the community, they are now gone. The time came to finally buy, and they were about half a million short of what they needed, with no banks interested in setting up financing for them.
Leasing for deed is like taking one of those balloon-payment loans: Don't do it unless you've already planned for "Volcano Day."
Wrong. If your credit rating sucks but you need to live somewhere, a "no credit check" lease is quite sensible. Similarly from the landlord's prespective, if you have a crappy rental property that no one with decent credit would want, don't bother with the credit check.
Rental scams are as likely to prey on the creditworthy. More likely in fact, because even conome don't want the check to bounce.
The supply of un-sellable houses is up because the prices are too high. Its called 'economics' :)
I came here to say what Jordan said. It's really not a problem as long as you keep your stuff packed for rapid relocation and you don't mind losing the security deposit as a premium. If you were someone whose credit was bad enough, it might look like a bargain.
It's like payday loans. Most everyone know the conditions suck, but they thrive on people who literally have no other option.
the only people who apply are people with stunningly awful credit, or the very, very ignorant.
I don't know if you meant to offend, but devout Muslims are forbidden from using traditional forms of credit. They can and do legitimately buy homes through "rent-to-own" though, even if they have good credit.
When you start a secret blog about your crazy roommates, please let me know how to find it!
Yes, but on the plus side, the bank will often let you squat for a while. Just keep checking and as soon as it's been foreclosed, stop paying the rent. The worst is when its already been foreclosed but the owner doesn't tell you, hoping to continue to collect rent even afterwards.
I don't think there's anything inherently evil about a lease-with-option-to-purchase arrangement. The rent and the sale price and the terms of the option contract should be negotiated between the parties as with any real estate deal. I don't know how anyone would be entangled in such a deal against her will.
Megan,
Perhaps you've explained this elsewhere, but why are you moving to a shared house? Presumably, if money were the main issue you could move to a smaller apartment, or one in a less desirable (and thus cheaper) area. Are you moving for social reasons?
Freddie: It's like payday loans. Most everyone know the conditions suck, but they thrive on people who literally have no other option.
Funny, when I was in college I saw people driving to payday loan places.
In cars nicer than mine
Wearing clothes I couldn't afford.
This was all analyzed very clearly by Marx. (The smart one)
As he put it "I wouldn't join any club that would have me as a member."
Or, to lower the hyperbole back to 11, if the deal doesn't require you to prove your income, credit worthyness and reputation, then you could find a deal that does, and get a better deal.
I am a bit confused by this post. There are two different topics here, no credit check rentals and lease options.
A lease option is a perfectibility acceptable way to purchase/sell a house. A lease option is often used by sellers in a tough real estate market. Why would one offer a lease option if you could get straight cash for the place (unless say you wanted to keep a mortgage for tax purposes)?
For buyers who can't secure a bank loan due to bad/no credit or no down payment, a lease option can be helpful as it allows you time to either repair your credit of save for a larger down payment. Until recently, banks would loan money to just about any yahoo w/ a pulse, which is why lease options were rare . There is no need for a credit check until you go to the bank to finance the purchase option (unless the owner requires one for you to move in).
I don't see how one can get "entangled" in a lease option as you need to negotiate (term, option premium, etc) and put together a lease and option contract for signature. If you don't want to own the property in the future, you shouldn't even be discussing a lease option in the first place. A lease option comes with an option premium on top of the market rent value. If you don't want to eventually purchase, you should enter a standard rental/lease agreement.
i'm not sure i understand why you are moving also. Last time I checked you still had a job and while journalism on the whole is taking a hit, it seems like the atlantic has been kicking some ass (especially the blogs) over the last few months. what gives?
This seems to be an odd conflation of lease to buy with craigslist apartment ads. Also, outside of some extraordinarily tight rental markets, credit checks aren't all that pervasive. You see them at buildings run by larger management firms, but not so much otherwise.
Sorry, wrong: But the supply of unsellable houses has ballooned, even in the relatively insulated DC area.
There has NOT been a particularly large increase in houses built, nor in the number of folks who want to sell.
The BUYERS have stopped being willing to pay too much.
I doubt that many 3+ 2bath 2000+sq foot houses are having few offers at $90 000.
They aren't selling at the high prices. That's demand reduction pop, not supply balloon -- please correct your metaphor.
Rent-to-own is essentially a FSBO where the seller finances the loan but it's structured so that the buyer assumes any risk of default.
From the seller's point of view, either they sell the house on normal terms, or the buyer flakes out in which case they had a good renter while it lasted (probably collecting higher rent than they would have for rent-to-rent).
From the buyer's point of view, you have to ask yourself the same question that the bank would (should) ask you if you were applying for a loan: am I good for it?
If you're not good for it, then you should forget about rent-to-own and just rent. If are good for it, then it makes sense but there's no point unless you can't find a bank to finance you on the same terms.
What are the chances that your credit really is good but you can't find a bank to loan to you? Until recently, very small. A bit more likely now.
Re: Also, outside of some extraordinarily tight rental markets, credit checks aren't all that pervasive.
Some sort of background check is fairly common even with private landlords these days (usually it is conducted by a real estate firm which is handling the marketing of the property on the rental market for the owner). I've had this done the last three times I rented a house (in St. Petersburg, Fort Lauderdale and now Baltimore). The check isn't so much looking for credit issues per se, but more specifically for judgments involving past rentals.