Home Buying in 92126>Question Details

Richard D., Home Buyer in 92126

Lease Option / Rent-to-own in Mira Mesa / PQ - help

Asked by Richard D., 92126 Tue Jul 16, 2013

Looking for rent-to-own and lease option info for the Mira Mesa / PQ area. Do these even exist? My wife and I make enough to afford a home, but past credit issues and not a big down payment prevents us from qualifying. We are good people, do a lot in the community, have two kids ages 16 and 11, just had some unfortunate events occur in the past few years. The lease option & rent-to-own programs sound great but there is not a lot of trusted info out there. Any suggestions? Thanks!

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Kari Shea’s answer
Hi Richard,

Trevor has the facts correct. Furthermore, contracts for lease option to purchase are considerably more complex and and we would recommend using a real estate attorney rather than an agent to draw up and review the terms from the landlord/seller. We work in both of those markets and lease options are a challenging find.

Best of luck,

Mark & Kari Shea
Shea Real Estate
National Association of Realtors
CA DRE License 01713506
0 votes Thank Flag Link Tue Jul 30, 2013
The best way to find a rent to own is to make one yourself. Contact home owners directly and ask if they are interested in working out a lease option or a rent to own. That is the same thing us Realtors do to find people that want to sell their home. You may have to speak to hundreds of home owners. Realtor’s jobs are severely undervalued and if you give it a shot yourself you may find that it's not worth the time and effort it will take compared to working on fixing your credit and saving a down payment.

J.R. Thrasher
1 vote Thank Flag Link Wed Jul 17, 2013
Lease Options

Hi Richard,

Rent to own, known as a lease option, is a technique investors use to make money. You pay higher up front, about 5% of the purchase price, plus extra rent each month. The regular rent goes to the owner, but the additional payments are used to buy down the price of the home. If you end up not being able to qualify for a loan from a lender at the end of your option period, you don't get any of that money back. The investor will try to get you to take the shortest option period possible, maybe one year, banking on the fact that you won't be able to exercise your option by the end of it. Most renters end up not being able to qualify for a loan, which is why investors do it.

For example, if you buy a $275,000 home and a $7,500 up-front fee, then pay a rent premium of $500 a month on top of their $1,600 market rent, you'll have $13,500 saved after one year and $25,500 after three. But, if you just did that on your own, you'd have the same amount with interest.

That would be great since prices are rising, but investors are fully aware that prices are rising, so your option period will be short.

One disadvantage is if you can't qualify by the end of your option period, usually 12-24 months, you paid all of that for nothing. You may be able to get a contingency worked into a contract for the return of the extra rent and up-front payment in a buyer's market, but we're in a seller's market. Another is the owner who negotiates a lease option, but doesn't tell you he's in foreclosure, and the home is repossessed without your knowledge, a scenario far more likely in this market.

Have you spoken to any lenders yet to see what you need to qualify? When you have this information in hand, you'll know if you can swing a house with the rent applied to the loan. But, it'll only make sense if you can get a long option period, AND you know you'll be able to qualify at the end of it. But, if you can save 3% or 3.5% for a down payment by the end of the option period and still get a similar house, you won't need to do a lease option, and you'll have many more houses to choose from.

So, do two things:
1. Talk to a lender or two (I can send you some to talk to)
2. Do a search on lease options, and you'll find a lot of information on this investment technique, because that's what it is.

Good question, and good luck! Call or email anytime with questions.

Warm Regards,

Cory La Scala, REALTOR
Independence Realty
619-825-6421 Direct
619-884-3452 Cell
Lic # 01443391
1 vote Thank Flag Link Tue Jul 16, 2013
Good afternoon Richard,

Rent To Own is a better deal for the Seller than it would ever be for a potential Buyer.

The basic concept is finding a way to "force" savings towards a down payment by including a portion of the monthly rental that goes towards that savings. You pay your rent every month and your Landlord deducts a pre-determined amount to hold in a special bank account, called an "escrow" account. Your Landlord holds that money until you have saved up enough---through this "forced-savings" method---to meet a down payment to purchase the home.

The terms of the purchase price, including the down payment amount, and the amount to be set aside from the rental for down payment, are all set down at the time of lease signing.

It's all about helping the renter/tenant save up enough money for a down payment to buy a home (in this case, the one you're renting). But this is a better deal for the Seller because he gets to lock in a purchase price and a buyer today for a future sale.

Saving money for a down payment? Well, heck, you can do that on your own.

If you are dedicated to the idea of buying your own home, you can create your own savings plan to save up enough money for a down payment. And when you have saved up enough for a down payment, if that takes a year or two or more, YOU get to decide on the price you're willing to pay for the house at that time based on current market conditions. You won't be locked in to a price that may be a lot higher than what the house is worth in the future.

With Rent To Own you'll be locked in both to the house and to the price, even if it takes you 3 years to save enough through the forced savings of the rent payments. What happens if three years from now your life situation has changed? Maybe you need a bigger/smaller home. Maybe your employment has relocated. Maybe your credit or income is insufficient to qualify for a mortgage loan.

Find a way to save up on your own; not with Rent To Own.

Sit down with a local Mortgage Banker and get yourself prequalified, too. You may find you're better qualified than you think you are, and, if you're not, at least you'll know how much loan your income and credit qualify you for, and how much you have to save towards down payment and closing costs.

Trevor Curran
NMLS #40140

*If you thought my answer was helpful, please give me a “Thumbs Up” or “Best Answer.” Thanks
0 votes Thank Flag Link Wed Jul 17, 2013
Hi Richard,

Rent to owns do exist, but they are very rare and generally not a good idea. Most of the time someone ends up losing out. Generally, the rent to own renter pays a higher than market rent. You should be focusing on paying a low rent so that you can save up for a down payment and improve your credit. Patience, your time will come :) In the mean time, feel free to contact me directly, I have some referrals I can give you for credit repair professionals.

Kevin Sanderlin
Keller Williams Realty
Cell 858-212-4702
0 votes Thank Flag Link Tue Jul 16, 2013
There are honestly very vew rent-to-owns right now. The seller's market is in San Diego is hot right now. Rent-to-own options usually emerge when the seller's market is slow and folks need to be more creative.

I encourage you to rent, pay down your debts, and save money. Once your credit scores are up you can qualify for an FHA loan or 5% down conventional loan option.

Best of luck.
0 votes Thank Flag Link Tue Jul 16, 2013
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