Lease Purchase Homes – The Answer in Today’s Market?

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.