You may be among the thousands of people out there who would like to buy a home but for various reasons can't.The reasons could be bad credit, no down payment, not enough time on their job, not earning enough to makepayments, etc. These reasons are not as important when you use a lease option or rent to own to get into a home. With the lease option you will have a period of time (The length is negotiable but make sure it’s long enough) to:
1. Clean up your credit. If you've had a bankruptcy or a foreclosure you're probably going to need at least 2 years from the occurrence to qualify for a good loan. If your bad credit is more about late payments then you'll need at least a year plus whatever time you think it will take to clear them. With tax or other liens you might need up to 3 years to pay them off and get clearances.
2. To save the amount you need for your down payment. Make a budget and make sure you could save that amount during the lease period. Even if you aren't able to save as much as you'd like you can still get a loan, although it may not be as good as you'd like. Don't be too optimistic because things happen especially if you have a young family.
3. Most lenders want you to have a least 2 years in the same field so if you just changed fields be sure you have 2 years for the option period. If you have just changed fields you may be exemped from that if you have a solid employment contract.
4. If you're not making enough money to make payments now, you'll have to make some educated guess as how much you'll be making at the end of the option period. Here again give yourself plenty of time to reach the needed amount.
5. Make sure that if you're counting the wifes income that there isn't a period when she won't be able to work. Unfortunately this is not something that can be predicted with certainly so be careful estimating her income.
6. Lenders usually require at least a year of on time mortgage or rental payments so be sure the options covers that amount of time.
As the name implies the lease with option to purchase is a two part agreement and consists of two separate contracts. The first is a standard lease or rental contract spelling out terms and conditions such a length of the rental term and rental amount per month or period. The second part is the option agreement which gives you theright to purchase the property for a specific amount, the length of time the option runs for, the amount or type of option fee, if there is an amount from the rent credited toward the sales price or downpayment and how much it will be. There are usually some other conditions included in this contract especially if a lawyer is involved, which you as the buyer should want.
There are a number of benefits that make the lease option such a great vehicle for the credit or cash challenged buyer such as:
1. Instead of needing a large down payment, there is normally a smaller option fee. There is also a possibility of doing work on the property or some similar type of arrangement instead of an option fee of all cash. A cash fee would be credited toward the down payment or sales price and depending on the amount of work an additional amount might be subtracted from the sales price.
2. No need to have great credit because you'll be working to repair your credit to qualify for a loan during the lease period.
3. Not having to worry about being on the job a certain length of time, having a minimum amount of money in the bank or some of the other requirements lenders have.
4. Being able to treat the property as their own and able to fix it the property up like they want within reason. Usually the owner won't care what you do to the property as long as its an improvement. Check with them first though.
5. Having several years (negotiable) to get ready to qualify for a loan.
6. Peace of mind knowing the property can't be sold out from under you and that you are the only one that can buy the property as long as you obey all the terms and conditions of the lease and option contracts.
7. The possibility of being credited with part of the rent payment toward the sales price or down payment which can be a part of your savings for your down payment.
8. Circumstances may change and the buyer might not be able to exercise his option. The good thing about the lease option is that he can walk away at any time. Some of the reasons to not exercise his option might be a job transfer, not liking the area, the property value declines or any number of other reasons. Of course he’ll lose his option fee; any rent credits the owner may have given him and won’t be paid for any improvements he may have made on the property, but he won’t have any other obligations to the owner.
9. Normally the property price is negotiated when the lease option is signed which means the buyers are hoping the price increases. Of course if it declines the buyers don't have to exercise their option. Try to figure out what the property will be worth at the end of the option period and negotiate accordingly.
Now is the time of the real estate cycle that anyone who hasn't been able to qualify to buy a home should really start checking out the possiblity of using a lease option to get into their own home. Hopefully you can see why a lease option is such a great tool for a whole range of buyers. Ask questions about anything you're completely clear on. Make sure you understand exactly how to this works before jumping into it. Here are a couple of good guides that will steer you through buying with a lease option and make it a good experience for you.
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Contributor's Note
About the Author: Don Levy is a retired mortgage broker with a 40 year real estate career, during which he was also
an investor, surveyor, Realtor and appraiser. His website has a FREE Report at http://profitinforeclosures.com with everything you need to know about investing in foreclosures and lease options. You can also go to his blog at http://healthy-and-wealthy-now.com/realestate to get information on lease option and all other aspects of the real estate field. The blog at http://profitinforeclosures.com/leaseoptions features lease with option to purchase, rent to owns, etc.
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