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JazzyKat | Buying first home, lease to own is it a good idea? |
my husband and I want to buy our first home, we have been living abroad and will be returning to the US... we have no rental history, and my husbands credit rating is poor. Would lease to own be our best option as we desperately want to own a home and get his credit fixed. Or are they just another scam? |
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Monika Wilson
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A Lease Option or Lease Purchase can work very well for you. But you have to read the contract very careful and either have a Real Estate Attorney or at lease a lic. Realtor look over it for you.
The good:
A lease purchase contract will help you to establish credit. You just need to ask the "Seller" to report to the credit bureaus.
How a lease purchase works, most of the time you will have to have a certain amount down, this downpayment will go to the seller, part of the downpayment can go towards your purchase price.
You make monthly payments (like a rent plus an additional amount towards your principal) For example you pay 600,-- amount, 500,-- are going to the seller as a kind of rent and 100,-- will be applied towards the purchase price.
With a lease purchase in the current market you lock the purchase price, so if the market bounces back and prices are going back up, your purchase price will stay the same as it was when you entered the lease purchase agreement.
After 1 year or 2 years your credit should be established enough that you can apply for your own mortgage and pay the seller off.
The bad:
Most sellers will not transfer ownership until you paid in full.
If you get in default with your payments the now still property owner can kick you out and you loose your downpayment and your house.
So my answer is, if it is a scam or not depends on the seller and how careful you are in reading the small print on the lease purchase contract. It can be a good way to own property for situations like yours.
One of our sons is buying a property on lease purchase and he is doing just fine with it. In a few month he will be able to get his own mortgage, he will get a good interesst rate and can lower his monthly payments. |
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blibityblabity
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There are a lot of lease to own scams out there. Also, most aren't going to report to a credit agency, so it is not going to help is credit. Look for a land contract purchase(very similar to a lease to own, but worded different) Also, when you pay your monthly payment, make sure he pays with a check, so there is a paper trail. To improve his credit, he needs to get a secured credit card, and make sure to pay it on time each month. |
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A V A T A R
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Dr. Deth is right. Most people don't understand that when you do a rent to own, you have to make sure you are able to purchase at the end of the rental. Another thing most don't realize is the extra money he mentioned is not only extra money paid every month, but also the security deposit is usually a hefty one. A true rent to own is designed to let you build up your credit and save money for a down payment (the extra money put down and paid each month.) Too many would be purchasers find out they wasted a lot of money and end up moving on to rent again. |
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Rico
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If it's legitimate lease to own then you are paying higher rent.
Pick a place you want to live with reasonable rent and work on your credit. "Deperately want to own" is not practical. Even if you find something you can buy it won't be a good deal. |
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robert w
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candid answer? are u ready?
don't lease to own - u lose they win.
rent an apartment , build up ur credit track record by paying b4 the rent is due for 2yrs.
rent at less than u can afford , SAVE the rest. work 2more jobs both of u. work on clearing ur credit problems up. SAVE money.
when and only when u understand how to own ur money not be owned by it.
Then u have saved TEN percent down plus closing costs and have 6mths emergency funds and are No longer DESPERATE to buy a house then go looking for a home to be a blessing not a curse.
suggest u read 'house buying for dummies' ' finacial peace revisited' 'the richest man in babylon' and visit daveramsey.com to learn the hard lessons
the easy way , from others messups. |
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hollywoodmelody
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A lease-option is a good idea when you are not sure you want to buy that particular house and gives you a chance to live in it for one to two years before your purchase.
I would check the For Sale by Owners first because they are easier than most people think to work with. It's not because of your rental history, it would be a work history that concerns the lender. Before you go looking I suggest you talk with a lender about being pre-approved and not pre-qualified. there is a difference and with what you have stated, the pre-approval will carry more weight when talking with and agent, Realtor or the For Sale by Owner. |
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Me4Life
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From what I've read on the net it can be a scam but it can also be a win win for the buyer and the seller. The devil is in the details. A lease to own is done through an option. The option is your right to purchase the home. There are two different types of option contracts - lease option and lease purchase. A lease option contract is basically a fancy rental agreement. At the end of the agreement (usually a year) you have the option to buy the home. Typically the rent is inflated to cover the cost of the option. If you decide to buy the house at the end of the term the extra money goes toward the cost of the house. A lease purchase contract is the same but has a defined settlement date at the end of the lease period. In other words you have to buy the house. A lease option doesn't require you to buy the home. In both scenarios the seller has to sell you the house. Remember, you paid for the option. The nice thing is you can negotiate the term from anywhere from 2-3 years. That's plenty of time to repair your credit and pay the house down. Robinson Taylor Properties gives a very clear cut example of how the lease option can work. Find a good Realtor to work with to make sure you're protected. |
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Judy1
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Lease to own can be a good way to get into a home if you can't get a mortgage immediately. Just make sure to have a lawyer review the paperwork to be sure you are properly protected. |
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Dr. Deth
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usually a lease to own requires to to be able to get a mortgage in 12 months or so- if you're not able to get one, you might lose the extra you're paying vs straight rent - you need to get the credit fixed and get arental history before you start thinking about buying a house - you'll need down payment an closing money also |
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sandy n
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You said you "desperately want to own". Then do what it takes to own a home, including getting your credit straightened out FIRST. Then, have enough income to pay the mortgage, taxes, insurance, and ongoing maintenance cost.
Are you ready for all that?
Look up a "rent vs buy" calculator on the Internet and do the calculation. Depending on where you live, it may be a better investment to rent until you can afford the extra costs of home ownership. |
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godged
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Lease to own/rent to own can be a good thing. However, some owners want significant down and a good credit check. Unscrupulous owners that are in trouble will take your money and let the house go into foreclosure. Most owners get a strong contract that protects the property (which they should) and if you make a mistake, the contract is void, you are out, and out the money you put in.
With all the bad being out there, here is what should happen.
You should have a lease to own or lease option contract that is contributing to your downpayment. That portion is socked away for when you are ready to buy. This gives you time to rebuild good credit. Time frames should be established, you will have the option to purchase after (insert date here) and some allowances for extensions if necessary without penalty. There must be clauses for what happens if you decide not to purchase.
Absolute MUST: Have a RE attorney review the contract. It will be well worth the couple hundred bucks you are going to have to pay. Tell your attorney your understanding of the terms and make sure the contract states that. |
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bigoilman
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Well, since this is what I do, let me "chime in". All rent-to-owns are not created equally. Without the added protection layers offered by the use of Land Trusts, there are many potential pitfalls that can occur. These usually crop up when a tenant get sued or a married couple moves in, then starts divorce proceedings while in tenancy. Their lawyers start looking for assets to divide and decide that since they paid an "Option deposit" and have part of their rent going to "rent credits" toward a pre-determined sale price that they have an equitable interest in the property. As they "fight it out" the rent goes unpaid, leaving the mortgage unpaid and the house goes in to foreclosure. Ugly? You bet!
BTW, almost all rent-to-own's violate the lender's Due-On-Sale admonitions and the underlying loan CAN be called (accelerated). Thankfully, this doesn't happen often but it's happening more and more as interest rates rise. Only through the use of land trusts is this avoided completely.
Are rent-to-own's still a good idea? Absolutely! But only if structured properly. My deals are all structured in this manner:
House's deed is held in an Equity Holding Land Trust with the Seller as beneficiary. Seller names tenant/buyer as a co-beneficiary. You've then converted Realty to Personalty and protected the house from lawsuits brought against any of the beneficiaries (jointly-owned Personalty cannot be divided to satisfy a judgement against one the owners).
For the Buyer, it's simple. 5% + the first month's rent, MOVES YOU IN! When you refinance into your own name, you get your 5% back + 50% of any appreciation that's property's realized. When you purchase, you purchase at Full Market Value, determined by appraisal at the time of purchase. You also get the FULL TAX BENEFITS (mortgage interest deduction) of homeownership while you're "renting". Try that with any other type of R2O or Lease Option!
Here's an example of a real deal that I recently did.
House is worth $230k. Payments of $2050/mo PITI. Lease term of 36 months.
The RBs (Resident Beneficiary/Tenant) "NET" monthly payment over that 36 months if he is in only a 30% tax bracket is only $165.28 per month.
$2000 per month X 12 mo. = $24,000 (off taxable
income)/ 30% = $7200 more cash in his pocket per year
$7200 X 3 years = $21,600 + his net profits of $34,750 (50% of appreciation) + return of his initial contribution of $11,500 = $67,850
$67,850 / 36 months = $1884.72 per month. $2050 per
month - $1884.72 = $165.28 net montly payment.
Now, I don't know about you, but where can he go to
get a payment of $165.28 on a $230,000 house?
I know this is a VERY long post but this is an important decision for your family. Contact me if you'd like more info. I work with a network of investors who use this system daily. If I'm not in the area you want to live, I may be able to find you a home through another investor. |
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Alterfemego
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I would check with a couple of lenders in the area you want to live in. Renting for a short period of time would be a good investment as you return and get your bearings. Rental history isn't as important as your criminal background check. Leasing to own, or rent to own may be an option, but first check out what you need to do to actually buy something. My advise is to check with professionals first. And if you do find something lease/rent to own, make sure you hire an attorney to read and explain the lease terms. It will be well worth the money to protect your rights. Good Luck! Welcome back |
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ABC
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Buyer beware! |
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freddy sanford
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Its not a scam, as long as its outlined in your rental contract.
It can be a good idea for both you and the seller, and i think it is tailor made for people in your situation |
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Void
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Yes, with the details you provided, lease to own/rent to own would be better for you. Also, the current housing market, including mortgages, is not very good in the US right now. You'd be better off finding someone to lease to own for you and the interest rate would probably be substaintially less.
Good luck. |
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