Home Buying in Owensboro>Question Details

Carletta Dav…, Home Buyer in Owensboro, KY

Can I lease to own a house without a bank loan? With $5,000 down payment. House for sale for $50,000

Asked by Carletta Davis, Owensboro, KY Tue Aug 28, 2012

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4
Lease/Option
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!
0 votes Thank Flag Link Thu Oct 18, 2012
Carletta,
The short answer is "yes". In this instance, you would be leasing (as a tenant) until such time that you are able to get a bank loan to purchase the property. Be sure to have an attorney draw up your agreement with the seller so your $5000 is protected and you are credited with that money toward the purchase price when you close your bank loan. I do not know what is preventing you from getting a bank loan at this time, but in most cases, buyers who need to clean up their credit can do so and be loan ready in about 1 year. Please call me and we can discuss the specifics of your situation. 270-903-2167. I'm happy to help.
kp
0 votes Thank Flag Link Thu Oct 18, 2012
Hi Carletta, it may vary from state to state (I live in Utah) but almost all lease to own programs do not require a bank loan. These types of sales are generally financed by the seller and can be set up a number of different ways. Generally, the owner will want some kind of down payment from you and may agree to put some of the money you are paying towards rent towards the purchase price of your home. After a time that will be specified in the contract you sign, the owner will likely want you to be able to get a loan from a bank, but this can be several years down the line.
Most people who choose a lease to own option do so because they are not able to get a bank loan at the time they want to purchase. This allows them to have some kind of ownership while allowing time to build up credit, save money or for many other reasons.
I have sold two of my own personal homes this way. One buyer put down 60K, his payments were interest only (meaning none of the rent he was paying me was going towards the purchase price of the house) and agreed to be able to get a loan and actually buy the place from me in 3 years. The other home I had this type of contract on, the buyer only put 1K down, paid an extra $200 above what was market rent on the place, but that $200 per month would go toward the purchase price of the house. I gave him 5 years in our contract to get another loan.
There are major pitfalls to this system for the buyer and some advantages. I'll use the second contract mentioned above as examples for both. The buyer who put one thousand dollars down and paid $200 a month above market could have really come out ahead on this. After a period of five years, he would have accumulated twelve thousand dollars in extra rent, as well as the one thousand dollars earnest money. That is a 13K down payment right there. In addition, the value of the house went up about twenty thousand dollars in that period, so he could have gone to the bank 5 years later with 33K worth of equity in the place if he was credit worthy to get a loan.
The downside: what actually happened was that this buyer didn't have great credit, but was working very hard to do so. I gave him a chance, but a few years into the contract his personal demons got the better of him and he was unable to pay rent at all. I had to eventually evict him and we both lost. He lost the $200 a month and earnest money that he had given me, I lost several months rent while he wasn't paying and he did several thousand dollars worth of damage to the property.
At the end of the day, if you really want to do a lease to own and want the house, it can work out for you. Just make sure you read the contract carefully, have a lawyer who represents you look it over and make sure you do exactly what you agree to do. If the seller expects you to get a loan before you think you can reasonably do it, don't buy. You'll just end up losing your money. However, if you have a good solid financial plan in place, you want the house and the terms are good, it could be a win/win.
Good luck and let me know if you have any more questions!
0 votes Thank Flag Link Tue Aug 28, 2012
Lease/Option
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!
0 votes Thank Flag Link Tue Aug 28, 2012
Great point Ron. There are many seller who do this "lease to own" type of sale targeting buyer who they think will not be able to follow the terms of the contract. Sometimes they will sell the same property time and time again, hoping the buyer will default.
If you have 5K to put as a down payment, spend a little of that to have a lawyer look over the contract and give you advice BEFORE you sign anything!
Flag Tue Aug 28, 2012
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