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!
ps. Tim and I were separated at birth.
Let me also state up front that I occasionally sell properties on a lease option basis but I try to make it a good deal for both me and the purchaser. If its not a good deal for both you should avoid it like the plague
A lease with an option to buy means that you will lease the property for a certain time period and will purchase the right to but the property at a future date at a set price (this is the option). This allows you to lock in the price of the home for some period of time. If the value of the property goes up you can still buy at the agreed price (within the agreed time period of course). On the other hand, if the value of the property goes down, you can walk away without being obligated to purchase the property.
Lease options are typically used by folks that need some time to fix their credit and then will buy the house. If you cannot fix your credit within the lease period (so you can qualify for a loan on the property) then this is not a good deal for you.
A word of warning: the majority of folks that purchase an option never exercise the option and purchase the property so proceed carefully.
I recommend that if you go down the path of a lease option you do the following:
- Be sure you can qualify for a mortgage before the option period expires
- Make sure your option payments are applied to the down payment... remember if you are doing a lease option you have no real bargaining power on the price so you will want your mortgage amount to be as low as possible.
- Make sure the home is in an area that is likely to appreciate in value
- Don't agree to an option strike price (the mount you can buy the house for) that is greater than the market price
- Don't buy an option if you are going to be moving before the option expires
For my lease options I typically offer a 3 year lease and offer the tenant an option to purchase the property at market value at the time of the lease.
The option price I charge is 3.5% of the market value and I will finance the option at 0% interest for 2 years. I do not charge a deposit on the property but will take the money that would have been the deposit and will apply to toward the option.
I also apply 100% of the option payments toward the down payment when they buy the house. I do this because the FHA has been requiring a 3.5% down payment and this way the tenant can get in the house without a down payment.
I feel that this makes it a good deal for both myself and the future buyer.