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Miss Goldie, Renter in Smyrna, GA

can you lease purchase a home with bad credit?

Asked by Miss Goldie, Smyrna, GA Fri Jan 13, 2012

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Miss Goldie,
You can rent or lease from someone with an option to buy however the Banking industry doesn't really give you credit on your payments like they used to. What I find happens most often these days is you make excess payments well above the amount you could just rent it for and then years down the road if the homeowner has an offer to buy from someone else you must be ready to buy. If you can't qualify for financing with the bank to purchase the home by that deadline you forfeit your over payments You would be much better served to rent and take the additional money to (1. pay off old debts, 2. have your credit cleaned, 3. establish at least 2 new Secured credit cards. {most banks require 3 credit lines open for more than a year}, 4. SAVE, SAVE, SAVE)

There is No Work Around for buying a home through the banking industry.

This is not to say that there are not private individuals who will sell you a home with their own financing, but make sure you are aware of these pitfalls:

A. you will most likely pay a much higher interest rate than what the market would offer you.
Example right now FHA 30 year rates are close to 3.75% a private lender may have you pay 6+%

B. your name is not on title, the home can be sold or Foreclosed from under you
I have seen people make all the payments to the owner, but the owner was in hardship themselves, they decided to pocket the money you gave them instead of paying the mortgage they have on it. so then it forecloses and all you can hope for is someone will allow you to continue to rent there until it sells again. Ultimately they own the home and can do what ever they want. Homeowner doesn't like you, you were late 1 time on you payment, your not keeping up the maintenance or treating the house the way they would, they want to move back in it themselves...

C. You volunteer yourself to all the maintenance issues a renter would not pay. Taking on the role of home ownership open you up to the reality of Home Maintenance. much like renting a home is like renting a car. If anything happens to the car (engine over heats, brakes don't work, tires are worn, won't start) you can just turn it back in or get a new one and let the company who owns it take on the expensive stuff. The same goes for a house. Typical fixes, AC or furnace breaks 1,600 - 5,000, Water Heater $1,000, Roof leak $200 - $7,000. In a 4 years, I replaced 2 ac/furnace units, 1 water heater, and $2,000 deductible for replacing the roof. I love to have that $13,000 back. Lawn care, plants, painting nothing you can get your money back on should you leave. I've also seen homeowners take back over the home after the lease to own person renovated the whole home all the work and money gone

D. Remember you are doing Private Financing, not a Home Mortgage you Cannot Write-Off the interest on your taxes, The whole idea about buying a home beyond something over your head is Tax Deductions other wise it's sometimes cheaper and more sensible to just rent

E. What if the price you agree to end up being a lot more than the house is worth, remember you set a expected price on the home as is today not for the value down the road
example - you agree to pay 150,000 based on today's sales, but just like what has happened the last few years, there are a whole lot of poor sales and Foreclosures and now the neighborhood is selling for 60k.
for one you couldn't get financing for anything more than 60,000 you would have to pay them 90,000 in cash for a home that isn't worth it. if you walk away from the purchase they keep all the money you paid them

Here is a true story of a lease purchase gone wrong. I just had a lady call me 3 weeks ago who had been paying on a Lease purchase for almost 10 years. She had put 50,000 down on the home when she 1st moved in. she agreed to a 4,000/ month (or 48,000/year) as lease-to-own payment (500/month to go towards the balance or 6,000 a year). over the years she made an additional 70,000 in cash payments.
So, in ten years she made 6,000 x 10 = 60,000 + 50,000 + 70,000 = 180,000 in payments to the owner
Here's the bad news
1. she had a original purchase agreement with the owner for 440,000 which he said he would finish selling to her for the remaining 260,000 however home sales in the neighborhood were now in the 180,000 range way below where anyone could give her financing. she would have to bring another 80,000 of her own money
2. She never worked on her credit the whole time and could qualify against the credit requirements
3. She had also now retired the year before at 70 years old and didn't make enough to even pay for a 50,000 mortgage payment let alone a 260,000. from 70k/ year down to 16k/ year fixed Social security
Nothing anyone can do for her
*Side note a mortgage at 260,000 would have been nearly 2,000 less a month than what she is still being asked to pay.
My suggestions is to RENT and FIX YOUR CREDIT than to waste your money or time
1 vote Thank Flag Link Wed Jan 25, 2012
Miss Goldie,

I ran out of room on my previous post but wanted you to know that if you would like to have someone review your credit and see if there are opportunities to fix it, please feel free to call.

Best Wishes,
Rob

Rob Robbins
Senior Mortgage Consultant
Cornerstone Mortgage Group
6151 Powers Ferry Road NW
Suite 610 Atlanta GA 30339
Office 678-578-7613
rrobbins@cmghl.com
Cell 404-932-5353
http://www.cmg-homeloans.com
0 votes Thank Flag Link Mon Jan 30, 2012
How bad is bad? 500? If you can agree on a rent to own with the landlord and propose a plan to clean up your credit and purchase the home in a certain time frame it may be possible. I would recommend you engage a realtor, loan officer and credit repair specialist to put a plan in action to purchase the home.
0 votes Thank Flag Link Wed Jan 25, 2012
It's all possible, but expect what is normally a bit hard to be much more difficult. The trick is to find someone who would work with you and those people do exist here and there. You may want to think over what steps you are/will be taking to better your credit, because that is a question that may be asked.
0 votes Thank Flag Link Fri Jan 13, 2012
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