Q: What is a "lease option"?
Sometimes known as a “lease to own”, “rent to own”, or “lease purchase option” (although there are subtle differences with each of these), a Lease Option is an arrangement where you rent a house for a specified period of time and pay upfront ‘option consideration’ to have the exclusive right to purchase it at a later date. A lease option allows you to ‘try before you buy’, and gives you time to build a down payment, improve your credit, and ease into home ownership at your own pace.
Q: Is Lease-Purchasing right for me?
Lease purchasing is ideal for anyone who cannot qualify for a mortgage today, but can within the next year or so. You might be self-employed, starting a new job, recently divorced, new to the area, or you have past or current credit issues. Perhaps you’ve found that prices are inflating faster than you can save your down payment. We can even work with folks who have a Bankruptcy, Foreclosure, or Short Sale on their record. If you are responsible and can make on time payments, we can help you get into a position to buy your new home.
Q: How is Lease Purchasing different from renting?
A lease purchase is an opportunity to lock in your purchase price while you are still renting. You will be given a written, legal “option” to purchase your home for a certain price within the next year (or an agreed term). We treat you as a home buyer, not a renter and expect you to care for the property as your own home, handling routine maintenance and repairs. This is a great opportunity to sample what it’s like to be a homeowner without having to actually deal with getting a mortgage, etc.
Q: What are some advantages to Lease Purchasing?
One great advantage is that you may be able to earn credit towards your purchase and/or other costs by paying rent on time and properly maintaining the home. Some tenant-buyers earn credits which they may be able to use towards the down payment or closing costs. Part of your move in payment – the option consideration fee – is instant credit towards your purchase. You will have up to a year (or more in some cases) to improve your income, credit or other issues, while locking in your purchase price today.
Q: How do I qualify for a lease option home?
In order to qualify for one of our houses, you will need to be able to put down a reasonable option consideration fee (typically 3-5% of the purchase price) which usually applies 100% towards the purchase price; have the ability to make monthly payments on time; and have a willingness to improve your credit situation, if needed, so you can ultimately buy the home.
That’s about it. We want to set you up for success in a home that is truly affordable, so in most instances we will want to see that your gross monthly income is at least three to four times the monthly housing payment.
The first step is to complete the Buyers List form.
Q: What if I have bad credit?
Don’t let your prior credit dings keep you from moving into the home of your dreams now. If you have bad credit, all that we ask is that you demonstrate a willingness to improve your credit score so you can qualify for a loan at the end of the lease period, can afford the monthly payment, and that you provide “skin in the game”. We have several resources we recommend to help you achieve this goal.
Q: How long do I have to buy the house?
Our lease option timeframes are generally for 12 months. Sometimes, depending on the situation, the lease option term may be extended. We’ll try to match the house to your credit situation so you have plenty of time to get financing.
Q: What happens if I am not able to qualify by the end of my Lease-Option term?
You can move out, or possibly negotiate a new agreement with new terms. If for some reason the house doesn’t appraise, we may be able to extend the lease option term.
Q: What happens if I decide not to buy?
If you decide not to buy the house, you are released from all obligations without additional cost. Your upfront option consideration and any rent credit will be forfeited.
Q: Will you check my credit?
We accept all kinds of credit situations, from good to ugly. We do require a copy of your credit report and we will perform a background check before you move in. The credit report is pulled mainly because we want to see what items that you’ll need to work on during your lease so you can eventually qualify for a mortgage. There may derogatory items on your credit that shouldn’t even be there and knowing this in advance gives plenty of time to clear them up. You may pull a report for your own use from one of the many credit reporting websites, and this will not show up as an inquiry on your credit. Depending on your situation, we may require you to work with a credit repair company.
Q: How can I get my credit report?
You may obtain a copy of your own report from each of the 3 major agencies online at MyFico.com. You will also receive your credit score and advice on improving your score. We require a report from only 1 agency.
Q: How is the price determined?
A comparable market analysis is done to find recent sales of similar homes in the area. Price adjustments are made based on the size, age and condition of the comparable houses and for inflation prior to your purchase. Lease Option homes are typically priced with projected future value in mind, so at first glance they may appear to be priced higher than similar homes in the area. Keep in mind that people who are already prequalified to buy are usually in a position to negotiate better pricing. However, with earned credits, your final cost may actually end up being less than those of similar homes.
Q: How does the sale get finalized?
Please let us know in advance when you are ready to buy so we can help guide you through the process! In most cases, you will work with a MLO (mortgage loan originator) who facilitate the mortgage loan process. We are happy to provide MLO referrals upon request. No realtor is necessary, as the terms of the sale have already been agreed to up front. We will most likely execute a new purchase and sale agreement according to the terms outlined in the option agreement, or we may be able to simply use the original lease and option agreements. You will sign the final documents at a licensed escrow company, who will prepare the deeds and other documents and record the final sale.