by VINCENT POLISI on OCTOBER 26, 2009 @ Credit Repair College
One of the questions I get most often from people interested in credit repair, is how they can buy a home when they have bad credit. While it was once easy for just about anyone to get a mortgage, bad credit mortgages are getting hard to come by.
This is a frustrating situation to be in – you want to own your own home more than anything, but tightening lending guidelines and your less than stellar credit history are making this seem like it is out of reach. Few things are more heartbreaking than finding your dream home and seeing someone else buy it.
More and more people who are unable to qualify for conventional financing but have good income have begun look to lease purchase homes to help them achieve their goals.
Choosing a lease purchase option allows you to rent the home for a set period of time. This gives you the ability to move into your dream home now, while you are working towards credit restoration and repair. One of the key benefits of a lease purchase is that the seller can not sell the property to anyone else during the agreed upon time.
A lease purchase contract, unlike a rent to own or lease option contract, requires that you purchase the home at the end of the period defined in the contract. You are legally bound to buy the home and can be sued if you fail to perform.
For this reason, it is imperative that you take aggressive action towards credit repair as soon as you sign a lease purchase agreement. A key step that you should take before you sign a lease purchase contract is to speak with a lender and have a clear understanding as to what it will take to qualify for a mortgage loan.
If you aren’t 100% sure that you can raise your credit score, or you are concerned that you might change you mind about owning the home, a lease option or rent to own home might be a better choice for you. These provide more flexibility than a lease option purchase. In both of these instances, you can change your mind about purchasing the home and the only negative consequence will be loosing your initial deposit money.
A Lease to purchase transaction, as well as a lease option or rent to own, will typically require a deposit some where between 2% and 5%. You will also have to pay the first months rent payment prior to moving into your home. It is important to note that the option money typically does not apply towards the purchase price of the home, though some lenders may allow it to be credited towards the down payment. You should also understand that in all types of transactions, option money is not refundable.
A portion of your monthly lease purchase payment will consist of what is called a rent credit. This is the amount that you are paying over and above market rent that will be credited to the purchase price of the home. The amount should be clearly defined in your lease purchase contract. The advantage of this is that your rent credit can help you get into the home with little or no cash down when it comes time to qualify for a mortgage.
With the changing market, lease purchase houses are becoming a viable option for people from all walks of life. From self employed individuals who need time to document their income to those looking for time to improve their credit, they are a great way to take immediate action towards your goals.
Tuesday, October 27, 2009
Tuesday, October 13, 2009
Rent To Own! (From Dollarrent.equitylinesite.com)
One of the best ways to buy a property at a rate that is not influenced by market trends do not get a rent-to-Own option.
About Rent To Own?
Ie rent-to-Own, is a situation where you can buy real estate at a future date, based on a specific value in the agreement and in the meantime, you live on a rental property. Other terms, which relate this form of purchase order, lease-purchase option or an annuity to be purchasedOptions
What is a part of the rent-to-Own Convention
The Rent To Own is composed of two parts. One section contains the lease terms and the other part has the option to buy.
The leasing section defines functions such as rent, the period of lease, the time to pay the amount, and so on. In the purchase section, you can acquire more information about the possibility of the property to see mentioned, at some point in the future, in addition to thePrice.
What aspect you should know about a rent-to-Own agreement?
Are in a rent-to-Own agreement, three factors. These are premium rents, fees and rent option credits.
Rent premium is an amount you will need for the prepayment of the property to be paid. It is an amount that is a little more than the rent. Another thing that goes on the down payment, the possibility of a fee. You have to note, however, that the option isYou will not be refunded, should you decide at the last moment that you do not want the property. A rent credit is a part of the rent, which is introduced for the down payment. This is confirmed by the seller who has Down payment each month.
Benefits of Rent To Own
There are many advantages in a hire-purchase situation for both the buyer and seller.
As a buyer, your gain, since the changes in market value has no effect on the price paidfor the property. So, if prices were to rise, you need not pay more, just the same amount that was proposed in the agreement.
They contribute to the rent payments by premiums, fees and rent option credits, reducing the amount that you pay at the time of purchase. This is a real advantage for you when the time comes for payment.
Finally, when the last moment, you do not choose to buy the property, you are free to do so. There are nobinding option to purchase. Despite all the money is paid on deposits in such cases, a loss for you still, you can unwind with a purchase, you do not feel right in the final minutes as well.
Seller benefit by someone who will look after their property really well, as they will own the property in the future. The seller receives the money not only for the value of the home, but also in the form of rent, which is an additional source of money, until the actualPurchase happens. In case the buyer decides not to buy the property at the end of money made to do by hiring non-refundable option fee award.
A look at the other side of the coin
As someone who should engage in rent-to-own agreement, you are on the other side of this situation and deliberately. As a buyer, you will lose your rent option premium and fees, you should decide to withdraw from the purchase at the end. In the case of the seller, the application of market-basedPrices suddenly rise up, they would be on the losing side, because the price would be set for their property to be significantly lower.
About Rent To Own?
Ie rent-to-Own, is a situation where you can buy real estate at a future date, based on a specific value in the agreement and in the meantime, you live on a rental property. Other terms, which relate this form of purchase order, lease-purchase option or an annuity to be purchasedOptions
What is a part of the rent-to-Own Convention
The Rent To Own is composed of two parts. One section contains the lease terms and the other part has the option to buy.
The leasing section defines functions such as rent, the period of lease, the time to pay the amount, and so on. In the purchase section, you can acquire more information about the possibility of the property to see mentioned, at some point in the future, in addition to thePrice.
What aspect you should know about a rent-to-Own agreement?
Are in a rent-to-Own agreement, three factors. These are premium rents, fees and rent option credits.
Rent premium is an amount you will need for the prepayment of the property to be paid. It is an amount that is a little more than the rent. Another thing that goes on the down payment, the possibility of a fee. You have to note, however, that the option isYou will not be refunded, should you decide at the last moment that you do not want the property. A rent credit is a part of the rent, which is introduced for the down payment. This is confirmed by the seller who has Down payment each month.
Benefits of Rent To Own
There are many advantages in a hire-purchase situation for both the buyer and seller.
As a buyer, your gain, since the changes in market value has no effect on the price paidfor the property. So, if prices were to rise, you need not pay more, just the same amount that was proposed in the agreement.
They contribute to the rent payments by premiums, fees and rent option credits, reducing the amount that you pay at the time of purchase. This is a real advantage for you when the time comes for payment.
Finally, when the last moment, you do not choose to buy the property, you are free to do so. There are nobinding option to purchase. Despite all the money is paid on deposits in such cases, a loss for you still, you can unwind with a purchase, you do not feel right in the final minutes as well.
Seller benefit by someone who will look after their property really well, as they will own the property in the future. The seller receives the money not only for the value of the home, but also in the form of rent, which is an additional source of money, until the actualPurchase happens. In case the buyer decides not to buy the property at the end of money made to do by hiring non-refundable option fee award.
A look at the other side of the coin
As someone who should engage in rent-to-own agreement, you are on the other side of this situation and deliberately. As a buyer, you will lose your rent option premium and fees, you should decide to withdraw from the purchase at the end. In the case of the seller, the application of market-basedPrices suddenly rise up, they would be on the losing side, because the price would be set for their property to be significantly lower.
Friday, October 9, 2009
Use a Lease Option to Lock in Low Home Prices (From Get Rich Slowly)
Use a Lease Option to Lock in Low Home Prices
Thursday, 8th October 2009 (by Baker)
This article is GRS staff writer Adam Baker. In addition to his work at Get Rich Slowly, Baker blogs over at Man Vs. Debt, where he publicly tracks his spending on a daily basis.
Everywhere I turn, people are speculating on whether housing prices have bottomed. While I personally feel things are looking better, I’m never a fan of trying to time markets. Attempting this often encourages people to make large financial decisions before they are fully prepared or informed. Buying homes in haste is one of the factors that got us into our current financial crisis.
Luckily, there may be a silver bullet for those of you who aren’t willing to rush to buy but are still considering a home purchase within the next couple of years. Your solution may take the form of a lease option.
What the heck is a lease option?
The first thing you need to know about lease options is that everything is negotiable. This can quickly turn a set of simple principles into an extremely complex transaction.
Having said that, here are some common features to help you grasp the concept of a lease-option:
* A prospective buyer pays an option fee, which buys the future right to purchase a property within a specified time-frame.
* Unlike a traditional deposit, the option fee is usually not refundable.
* The fee paid for the option (or option fee) can vary widely, but is typically larger than a traditional deposit, and often ranges between 1-3% of the future purchase price.
* The future purchase price is either fixed up front, or a way to determine future market value is established. For example, at the eventual time of purchase, both parties may agree to average two independent appraisals.
* Many contracts will have a length of between one to three years, although this too is flexible.
* Throughout the contract, the buyer leases the property at a pre-set rental rate.
* Some agreements credit a specific portion of the monthly rental rate against the eventual purchase price. This can add legal complications and potentially present problems with mortgage lenders (who all have different guidelines and allowances for this).
Remember the first thing you need to know: everything is negotiable. These are just a few general guidelines to introduce the concept.
Disclaimer: The laws governing lease-option transactions vary greatly from state-to-state. The typical real estate agent does not have the experience or credentials to properly advise on these contracts. Always have an experienced real estate attorney review your unique situation and prepare/review any applicable documents.
The majority of lease options fail miserably
The average lease option and/or rent-to-buy arrangement is destined to fail. There are several reasons for this:
* Desperate landlords — Many times, lease options are used as a last-ditch effort to sell an overpriced property. Owners are either unwilling or unable to move off a certain price, and therefore turn to any technique that has a chance of bringing the desired sale price.
* Desperate tenants — The majority of tenants shopping for lease options can’t qualify for a traditional mortgage. Many of these candidates have full intentions of being able to eventually purchase the home, but few end up taking the necessary steps to clean up their finances to qualify for a loan.
* Poorly written contracts — All too often, these deals are made between two parties without consulting professional real estate or legal advice. Real-estate agents with no experience in lease options can often complicate the situation by providing bad advice. Malicious investors and property owners make things even worse by using shady agreements to extract large deposits and inflated rent payments, while never intending to actually sell the property.
Situations where lease options succeed
Is there any good news in all of this? Fortunately, yes. I’ve been involved in many successful lease-option transactions, where both parties walked away with smiles on their faces. Here are some situations in which lease options can shine:
* A genuine landlord who can’t sell quickly in the current market and understands the value of strong tenants.
* Homeowners who have recently relocated, can no longer support two full mortgage payments, and are willing to lease to tenants with an incentive to maintain the property.
* Tenants who have already turned their financial lives around and need a little more time to qualify for the best mortgage rates.
* Tenants who could qualify for the loan and afford the purchase, but have specific situations where purchasing immediately is not desired.
* There are a several situations where property owners may have legitimate reasons to desire a delayed purchase due to tax implications.
In our current economy, the value of a strong tenant has skyrocketed. Many landlords and property owners will be extremely flexible with tenants who can accurately demonstrate their strengths. This can include extending low-cost options for those tenants who may want to purchase the property in the next couple of years.
By locking in the future purchase price of a lease-option in today’s market, you’ll have the ability to capitalize on any rebound in housing prices without having to risk buying in haste. If housing prices remain consistent or dip further, you are under no obligation to follow through with the purchase. In most cases you’ll only be out the up-front fee that you paid for the option.
Like many of the topics covered in personal finance, a lease-option is just another tool for you to consider. When used poorly or with malicious intent, they are disasters waiting to happen. However, when used in an appropriate circumstance with the guidance of competent professionals, they can be a powerful addition to your arsenal.
Thursday, 8th October 2009 (by Baker)
This article is GRS staff writer Adam Baker. In addition to his work at Get Rich Slowly, Baker blogs over at Man Vs. Debt, where he publicly tracks his spending on a daily basis.
Everywhere I turn, people are speculating on whether housing prices have bottomed. While I personally feel things are looking better, I’m never a fan of trying to time markets. Attempting this often encourages people to make large financial decisions before they are fully prepared or informed. Buying homes in haste is one of the factors that got us into our current financial crisis.
Luckily, there may be a silver bullet for those of you who aren’t willing to rush to buy but are still considering a home purchase within the next couple of years. Your solution may take the form of a lease option.
What the heck is a lease option?
The first thing you need to know about lease options is that everything is negotiable. This can quickly turn a set of simple principles into an extremely complex transaction.
Having said that, here are some common features to help you grasp the concept of a lease-option:
* A prospective buyer pays an option fee, which buys the future right to purchase a property within a specified time-frame.
* Unlike a traditional deposit, the option fee is usually not refundable.
* The fee paid for the option (or option fee) can vary widely, but is typically larger than a traditional deposit, and often ranges between 1-3% of the future purchase price.
* The future purchase price is either fixed up front, or a way to determine future market value is established. For example, at the eventual time of purchase, both parties may agree to average two independent appraisals.
* Many contracts will have a length of between one to three years, although this too is flexible.
* Throughout the contract, the buyer leases the property at a pre-set rental rate.
* Some agreements credit a specific portion of the monthly rental rate against the eventual purchase price. This can add legal complications and potentially present problems with mortgage lenders (who all have different guidelines and allowances for this).
Remember the first thing you need to know: everything is negotiable. These are just a few general guidelines to introduce the concept.
Disclaimer: The laws governing lease-option transactions vary greatly from state-to-state. The typical real estate agent does not have the experience or credentials to properly advise on these contracts. Always have an experienced real estate attorney review your unique situation and prepare/review any applicable documents.
The majority of lease options fail miserably
The average lease option and/or rent-to-buy arrangement is destined to fail. There are several reasons for this:
* Desperate landlords — Many times, lease options are used as a last-ditch effort to sell an overpriced property. Owners are either unwilling or unable to move off a certain price, and therefore turn to any technique that has a chance of bringing the desired sale price.
* Desperate tenants — The majority of tenants shopping for lease options can’t qualify for a traditional mortgage. Many of these candidates have full intentions of being able to eventually purchase the home, but few end up taking the necessary steps to clean up their finances to qualify for a loan.
* Poorly written contracts — All too often, these deals are made between two parties without consulting professional real estate or legal advice. Real-estate agents with no experience in lease options can often complicate the situation by providing bad advice. Malicious investors and property owners make things even worse by using shady agreements to extract large deposits and inflated rent payments, while never intending to actually sell the property.
Situations where lease options succeed
Is there any good news in all of this? Fortunately, yes. I’ve been involved in many successful lease-option transactions, where both parties walked away with smiles on their faces. Here are some situations in which lease options can shine:
* A genuine landlord who can’t sell quickly in the current market and understands the value of strong tenants.
* Homeowners who have recently relocated, can no longer support two full mortgage payments, and are willing to lease to tenants with an incentive to maintain the property.
* Tenants who have already turned their financial lives around and need a little more time to qualify for the best mortgage rates.
* Tenants who could qualify for the loan and afford the purchase, but have specific situations where purchasing immediately is not desired.
* There are a several situations where property owners may have legitimate reasons to desire a delayed purchase due to tax implications.
In our current economy, the value of a strong tenant has skyrocketed. Many landlords and property owners will be extremely flexible with tenants who can accurately demonstrate their strengths. This can include extending low-cost options for those tenants who may want to purchase the property in the next couple of years.
By locking in the future purchase price of a lease-option in today’s market, you’ll have the ability to capitalize on any rebound in housing prices without having to risk buying in haste. If housing prices remain consistent or dip further, you are under no obligation to follow through with the purchase. In most cases you’ll only be out the up-front fee that you paid for the option.
Like many of the topics covered in personal finance, a lease-option is just another tool for you to consider. When used poorly or with malicious intent, they are disasters waiting to happen. However, when used in an appropriate circumstance with the guidance of competent professionals, they can be a powerful addition to your arsenal.
Wednesday, September 16, 2009
Buying Real Estate Using Lease Purchase Option
Owing a home is a big part of the American dream. But not everyone is fortunate enough to become a homeowner due to delimiting factors such as insufficient income, bankruptcy, bad or no credit, loss of employment, etc. For people with such troubles, owning a home is a distant dream and some of these people resign themselves to a lifetime of renting. But such people are not without options. Rent-to-own, which is also known as a lease-purchase option, can be an excellent alternative available to some people who are currently unable to buy a home.
A rent-to-own or lease-purchase option is an agreement between a prospective home buyer and a home seller. The agreement is basically a rental contract with a right to purchase the property after a period of time (usually 1 year). When a home seller offers a lease-purchase option, what they are really offering is the option to rent the house at some monthly rate, and to lock in the sales price of the home now, even though the prospective buyer would not actually purchase the house until a later time (if at all).
Here is a hypothetical example. Let’s say the monthly rent for a home is $1700. Under a lease-purchase option, a prospective buyer would rent the home for the $1700 a month, but would also pay an additional premium (e.g., $200-$300) every month for the option to buy the home after a period of time (usually 1 year). So in this example, the total monthly rent is actually $2000, but $200-$300 of the money will be applied toward buying the house at a later time. In other words, the home seller would apply the $200-$300 extra paid every month toward the prospective buyer’s down payment at the end of the year.
The good news for prospective home buyers is that it allows them to lock in the purchase price of the home now, even though they are not purchasing the home until a later time. The bad news is that if a buyer decides not to purchase the home at the end of lease term, the seller often keeps the premium amount paid over the year, although this is usually a point of negotiation.
Prospective home buyers should know that many of the terms described above are negotiable such as how much the monthly rent will be, how much extra has to be paid every month for the option fee (if any), the length of the lease term, etc. The other issue to consider is if it makes sense to lock in a home purchase price now in markets where real estate prices are still declining.
When compared to renting, a lease-purchase can be an attractive alternative because it gives prospective buyers an opportunity to own a home before they normally would be able to. There are some advantages to a lease-purchase option such as:
1) Low or No Initial Down Payment. Many lease-purchase options do not require an initial down payment.
2) Equity Advantage. At the end of the lease term, the value of a home may have appreciated over time, which benefits the purchaser.
3) Living Experience. Prospective home buyers have the opportunity to try out a home and neighborhood before purchasing the property.
4) Leverage Advantage. With just a small investment, a prospective buyer can control a property; yet still have the option of not buying the home if market conditions don’t warrant it.
Rent-to-own or lease-purchase option can be an effective strategy to home ownership. However, there are both positive and negative aspects to this type of approach (as described above). A good real estate agent can help you navigate the complex world of rent-to-own and lease-purchase option properties.
From:
http://www.mortgageratesaholic.com/9053/buying-real-estate-using-rent-to-own-and-lease-purchase-options/
A rent-to-own or lease-purchase option is an agreement between a prospective home buyer and a home seller. The agreement is basically a rental contract with a right to purchase the property after a period of time (usually 1 year). When a home seller offers a lease-purchase option, what they are really offering is the option to rent the house at some monthly rate, and to lock in the sales price of the home now, even though the prospective buyer would not actually purchase the house until a later time (if at all).
Here is a hypothetical example. Let’s say the monthly rent for a home is $1700. Under a lease-purchase option, a prospective buyer would rent the home for the $1700 a month, but would also pay an additional premium (e.g., $200-$300) every month for the option to buy the home after a period of time (usually 1 year). So in this example, the total monthly rent is actually $2000, but $200-$300 of the money will be applied toward buying the house at a later time. In other words, the home seller would apply the $200-$300 extra paid every month toward the prospective buyer’s down payment at the end of the year.
The good news for prospective home buyers is that it allows them to lock in the purchase price of the home now, even though they are not purchasing the home until a later time. The bad news is that if a buyer decides not to purchase the home at the end of lease term, the seller often keeps the premium amount paid over the year, although this is usually a point of negotiation.
Prospective home buyers should know that many of the terms described above are negotiable such as how much the monthly rent will be, how much extra has to be paid every month for the option fee (if any), the length of the lease term, etc. The other issue to consider is if it makes sense to lock in a home purchase price now in markets where real estate prices are still declining.
When compared to renting, a lease-purchase can be an attractive alternative because it gives prospective buyers an opportunity to own a home before they normally would be able to. There are some advantages to a lease-purchase option such as:
1) Low or No Initial Down Payment. Many lease-purchase options do not require an initial down payment.
2) Equity Advantage. At the end of the lease term, the value of a home may have appreciated over time, which benefits the purchaser.
3) Living Experience. Prospective home buyers have the opportunity to try out a home and neighborhood before purchasing the property.
4) Leverage Advantage. With just a small investment, a prospective buyer can control a property; yet still have the option of not buying the home if market conditions don’t warrant it.
Rent-to-own or lease-purchase option can be an effective strategy to home ownership. However, there are both positive and negative aspects to this type of approach (as described above). A good real estate agent can help you navigate the complex world of rent-to-own and lease-purchase option properties.
From:
http://www.mortgageratesaholic.com/9053/buying-real-estate-using-rent-to-own-and-lease-purchase-options/
Monday, September 7, 2009
5 Reasons Why a Lease-Purchase Option May be the Best Thing for You
Buying a home may very well be one of the most important things you do in life. Once you own your home free and clear, no one can take it away from you. That means you will always have a roof over your head and you will also have a net worth that is somewhat substantial. After all, a home is an equity property. Yet, some may be a little concerned over the process of purchasing a home these days. The real estate market is up and down and there are warnings of future homes being underwater due to an unstable market. So, does this mean you should sit out of the home buying process? The choice whether or not to do that is ultimately up to you. However, there are a number of signs that show it may be wise to explore a lease-purchase venture. Here are five reasons why:
When you lease a home without a purchase agreement, the money that you pay every month goes solely to the landlord. When you have a lease-purchase agreement in place, that amount of lease money is going towards a down payment on the home. This means you are gaining a potential huge value out of your monthly payments which would not be possible otherwise.
On the flipside, if you decide not to purchase, you could simply move out and find another place to live. You could actually even renew the lease agreement without a purchase plan. If you were to purchase the home outright and had a 30 year mortgage, you certainly could not just walk away from it. Well, actually, you could but the consequences would be somewhat severe.
As much as we prefer not to think about it, there may be instances where you will be unable to pay your monthly lease fee. In a worst case scenario, you may be evicted due to failure to pay rent. If this occurs, your credit will be marred and you will need to find another place to live. While this is not a nice scenario to experience, it is certainly much better than having to deal with foreclosure issues.
You can gain a definitive insight on the costs of maintaining the property. No, it is not just that monthly lease fee that comes out of your pocket. The utility bills, the upkeep of the property, and various other fees come into play when living in a home. Upon gaining a clear idea of what the total costs are for owning the home, you can then make an informed decision as to whether or not you wish to purchase the property.
The comfort level of living in the neighborhood will be revealed. Maybe you really don’t like having to drive 5 miles to reach the nearest convenience store. Yes, you really will not get a gauge on how much you like a neighborhood until you spent a little time there. A lease-purchase agreement lets you do this.
http://www.thisisunioncounty.com/blog/2009/09/5-reasons-why-a-lease-purchase-option-may-be-the-best-thing-for-you/
When you lease a home without a purchase agreement, the money that you pay every month goes solely to the landlord. When you have a lease-purchase agreement in place, that amount of lease money is going towards a down payment on the home. This means you are gaining a potential huge value out of your monthly payments which would not be possible otherwise.
On the flipside, if you decide not to purchase, you could simply move out and find another place to live. You could actually even renew the lease agreement without a purchase plan. If you were to purchase the home outright and had a 30 year mortgage, you certainly could not just walk away from it. Well, actually, you could but the consequences would be somewhat severe.
As much as we prefer not to think about it, there may be instances where you will be unable to pay your monthly lease fee. In a worst case scenario, you may be evicted due to failure to pay rent. If this occurs, your credit will be marred and you will need to find another place to live. While this is not a nice scenario to experience, it is certainly much better than having to deal with foreclosure issues.
You can gain a definitive insight on the costs of maintaining the property. No, it is not just that monthly lease fee that comes out of your pocket. The utility bills, the upkeep of the property, and various other fees come into play when living in a home. Upon gaining a clear idea of what the total costs are for owning the home, you can then make an informed decision as to whether or not you wish to purchase the property.
The comfort level of living in the neighborhood will be revealed. Maybe you really don’t like having to drive 5 miles to reach the nearest convenience store. Yes, you really will not get a gauge on how much you like a neighborhood until you spent a little time there. A lease-purchase agreement lets you do this.
http://www.thisisunioncounty.com/blog/2009/09/5-reasons-why-a-lease-purchase-option-may-be-the-best-thing-for-you/
Wednesday, August 19, 2009
Understanding Rent-to-Own Apartments | Oh My Apartment
Understanding Rent-to-Own Apartments | Oh My Apartment: "Rent-to-own apartments are apartments that give the renter a lease purchase option. In other words, when your lease term is up, or at some other time, as stipulated in your rental agreement, you will be given the option to purchase the ...
Oh My Apartment - http://ohmyapt.apartmentratings.com/"
Oh My Apartment - http://ohmyapt.apartmentratings.com/"
Wednesday, August 12, 2009
Article On Lease To Buy In Florida Today
Real estate: Lease-to-own an option for buyers
Deal allows savings toward down payment
Kurt and Nichole Coleman need some time to save a down payment on their next home, but that doesn't mean they're postponing the search.In fact, they've found the house they want to buy, and they're already living in it.
The Colemans are using a creative financing tool known as a lease-purchase option on the Melbourne Beach home, which they moved into in May. The couple has a lease on the property and an option to buy it any time in the next 10 years.
The arrangement lets homebuyers save toward the purchase -- often, a portion of the rent is designated for the down payment -- while giving the seller some rental income in the meantime.
"Basically, you're buying time," Kurt Coleman said.
Coleman is a fan of the financing tool, and used it to buy his first home when he was 25. At the time, he wanted to buy a home, but he didn't have enough cash to qualify for a loan, and he didn't have a credit rating.
Under the terms of that deal, he had a lease on a Melbourne home and an option to buy in five years. He paid double the market rent for the first six months, with half going toward the down payment. Then, the rent dropped to the going rate, and 20 percent of that amount went to the down payment fund.
The forced savings helped him quickly amass the 5 percent down payment he needed as a first-time homebuyer. He closed on the home in three years, instead of five.
This time, he and his wife are using the method to buy a home in Melbourne Beach. They need the time to save a down payment because they're keeping the Melbourne home, as well as Nichole Coleman's previous home, as rentals.
They negotiated a 10-year deadline to exercise their purchase option.
"I gave myself a lot of breathing room because of the economy," said Coleman, who works as a firefighter for the city of Melbourne. His wife is a nurse and the couple has two children.
Their security deposit and20 percent of their rent payments will go toward the down payment. The purchase price of the home is already settled; the Colemans offered the seller his full price to make the creative approach palatable.
The deal looked good to listing agent Cindy Walker, who had listed the property for the seller for a long time without any purchase offers. The home had been rented on and off, but nothing approached a sale."The way I presented it to the seller was, 'I do believe there's someone for every property, and this is it,' " said Walker, a Realtor for South Island Real Estate in Melbourne Beach.
She received a rental commission for the lease arrangement, and will receive a sales commission if the purchase option is executed. That discourages some Realtors from working on lease purchases, she said.
"Nobody wants to wait 10 years for a commission. But I look at it as money in the bank," she said. "I've now established a relationship with this other person, and this is a relationship business."
She and Coleman offer tips for others contemplating using a lease-purchase option:
"You don't want to be six months out from your option limit and find out that you're not going to qualify," he said.
The Colemans are gambling on where interest rates will be in the future, but they're confident the market will rebound. "I feel like I'm going to have quite a bit of equity in 10 years," Kurt Coleman said.
Subscribe to:
Comments (Atom)