There are many people looking for an alternative to buying their next home. This could be lease purchase or rent to own. We are going to talk about lease purchase today.
When looking in this direction one needs to under stand that it is on the buyer to make the best compelling case and have a Realtor that is willing to work very hard for them that may not get his or her full pay check for doing more work. Most clients just don’t understand that unless they are paying the Realtor out of their pocket that the Agent is not going to get paid from the seller until buyer goes to closing. This could be 1, 2 or even 3 years later. If you go to work this week you’re looking for a pay check at the end of the week. This is why most Realtor’s don’t do Lease Purchase or Rent to own or put very little wait on that file if they do take it on.
Things to remember with the Lease to Purchase or Rent to own.
1.) You have to have one or the other money or credit. – Sellers are looking to sell the home and move on at some point. Why would they want to take the risk of allowing you to move in and have to deal with possible damages, eviction, and or paying for the mortgage and taxes if you don’t follow through.
A.) If you bring enough money to the table to cover your closing cost and down payment you look like a better risk to the seller.
B.) If you have little cash but have a great credit score and it’s just a matter of time till you get the cash for closing and down payment you’re a better risk to the Seller.
2.) When you are looking to do a Lease Purchase you have to under stand that the seller is taking as much if not more risk than the Buyer. Normally you see small self employee people doing Lease Purchases more than any one else. Why you ask well they have an account that told them they made 80,000 dollars for the year but if they write off xyz they only have to pay taxes on $15,000 dollars. This is great until you go to a bank to get a loan to by a home. The bank only looks at how much money you made. How do they decide that, they look at how much you paid in on taxes. They see that you make $80,000 a year but you only made $15,000 after all your debt were paid so they go by the $15,000 dollar number. This is why most of the small self-employed people do Lease Purchases. They have great credit with great income but they are not claiming it. So they need to claim the income for 2 years to use it for the bank to give them a loan. Thus they claim the income they need to show for buying the home on this years taxes and if they file quarterlies then we can pro rat their taxes on the end of the second Quarter of next year. Thus they will show qualifying income in less than a year and a half and they can close the loan. This is a good risk for the seller.
3.) On the other hand we have many people now days with less than perfect credit looking to do a lease purchase to get into their first home. We have help many of them do this. But they have the road to haul. It can take 1 month to a life time to fix credit issues. How we do this is we look at the credit with our bank. The bank then tells us if you fix xyz we can get you a loan in 6 months 2 yrs or what ever the case may be. So now we know what you have to get fixed and if you can fix it and move on. Once you decide that you can fix and repair your credit and we can do it in about 2yrs that is when we start looking at homes for sale.
4.) Let’s go with an example now on what we can expect for a Lease Purchase and if this is the right move for you. We have talked with the bank and they tell us when you fixed the xyz they will be able to lend you up to 100,000 dollars for a home. This means then there is no use in looking for 120,000 dollar home the bank will not lend you the money to buy the home since it is too high. Thus you would lose your deposit money since you can not buy the home.
A.) We find a home for 100,000 that works for you family and their needs. It may not be the perfect home but it works. Most people don’t buy their perfect home the first time that is why the average home owner buys and sells 5 homes in their life time. They have to build up to there wants. Every ones wants out way there needs. So now we write and offer on the home for a lease purchase. We ask the seller to give us 3 years to get our credit in order and in exchange we are putting down x amount of money and non-refundable deposit. This means that if for any reason you don’t buy the home or live by the contract you lose the money no questions asked. The normal Deposit for a lease purchase is 10%. Why well the Realtor’s will get paid half of there pay check up front and half at the end in most cases this will take 3,000 – 4,000 dollars of that money from the seller and the Brokers fee. Now the seller is setting with 6-7,000 dollars in their pocket for the down payment on their next home or for what ever. If the seller agrees we can ask that part of the monthly payment to them over the 3yrs be credit back as deposit money just like principal on a loan is credit to paying off the loan. This could build you 0 – 6,000 dollars more money for closing until your credit is fixed. Thus you will have plenty of money to close on the home with when you buy it out right.