Make sure that you understand all the contingencies and specifications before getting into this type of contract. The good news is that there are many good options out there for you and you can have the upper hand during negotiations.
Lease options/lease purchases and/or renting to own is not the right scenario for everyone. You truly need to be committed to improving your credit and, after the analysis of a lender, it needs to be realistic that you will be able to actually repair your credit within a 12-24 month time period.
I work with a company that will have an investor purchase the home of your choice. You will essentially need to pay about $3750 upfront, and then you will also have to front the earnest deposit at time of contract. The earnest deposit is credited towards your future purchase. So, I would expect your total out of pocket expense to be around $5000-$6000.
There are benefits to doing a lease purchase/option, especially in this market. You don't have to worry about moving again, and you can treat your home like it is truly yours. It is also an advantage in a market like this, to lock in your price while the market is so ripe with great deals. We enjoy great success in helping families to gain home ownership and look forward to helping you get into a home which makes sense financially and meets your desires.
Letâ€™s review your benefits. The goal is to create a win-win for you and an investor who will be the bank for you. The investor will use his good credit and pay the down payment and fees to purchase the home of your choice. Your investor will expect you to cover the monthly cost and will make a nominal return of 10% when you become financeable after working with a credit consultant. This fee can be completely offset through the negotiation process when we make an offer on your home. You may have heard this before: â€œYou make money on a home when you buy it not when you sell it.â€
The key to a successful transaction is negotiation. Good negotiation equals a good deal. This is why they provide a local buyers real estate agent (me) who is good at finding the right type of house. Discuss with me what type of home you want, what area you would like to live in, and what price fits within your budget. Work with me to negotiate the best price. Think of it this way: The better the deal the more money in your pocket (equity) when it is time to get the home refinanced in your name.
Here is an example of how we can create a winâ€“win opportunity. Letâ€™s assume you and I find a nice home worth $200,000 and the seller/bank is motivated to sell and open to negotiate. Most buyers are motivated as the market is a â€œbuyerâ€™s marketâ€ today. Great discounts can be found in the short sale and or bank owned properties today as there are an abundance of them.
$200,000 House value (based on an evaluation of recent closed comparable properties)
$-40,000 (20% discount)
$160,000 Purchase price
$ + 5,000 Closing cost/fees est.
$165,000 Investors purchase price
$ 16,500 Investorâ€™s 10% gain
$181,500 Buyback price for you within 2 years
$-200,000 House value
$18,500 Your equity in the home
In this example you would have an equity position of $18,500 through the negotiation of the purchase price. In addition, the home should appreciate in value during the lease term.
Letâ€™s say the home appreciates at a nominal rate of 5% a year:
$200,000 House value
X 5% Appreciation rate
$10,000 Equity in one year
In one year this would create a house value of $210,000 and your contract price of $181,500 gives you a total equity position of $28,500! If you had to go another year there could be even more equity available to you.
Buying a home can be an emotional decision but you also want to make it a wise financial decision. Our goal is to help you get into a home and make money doing so while we assist you in improving your credit. We want to help you find the right home that makes sense. We want to help you get back on your feet and into home ownership. We understand that you have some credit issues. We understand these credit issues are probably serious enough to have stopped you from pursuing your dreams of owning a home. Do not give up, but be very serious about your ability to pay for your new purchase. The purchase of a home should be based on your current income and not on income what may or may not be coming. We do not want to put you or our investors at risk. We want this to be a solid start for your new future.
As stated above, we understand you have credit issues. We will base our ability to help you on the belief we will be able to get the home financed in your name within a two year period. Contact me if you would like to learn more about the program.
I'm not so sure you should go the rent/lease option to buy route, like many of the agents already documented. If you choose not to purchase, you are losing out on the money you put down, as well as the higher rent you will have been paying - typically you pay a higher rent amount, as a portion of that is used for your down payment when you go to purchase the home.
The amount of money you need to purchase a home is not just an amount anyone can tell you off the top of their heads. It depends on the price of the home, your credit score, your income, and the type of loan you are able to secure.
The first thing I would recommend you do is try and talk to a lender to see where you are at currently, and also to determine how they may be able to help you improve your credit score. It's difficult for me to know where you are at when you say your credit is not so good. Typically if you have a credit score over 620, you have okay credit. If interested, I could provide you with several quality lenders who would be willing to talk to you and help.
I'm not sure what your timeframe is regarding your move, but it might be more beneficial for you to rent a home, start working on improving your credit score, start saving for a down payment, and buy when you are in a better position.
There are many options for move in costs on rent/lease to buy homes and all these costs can be negotiated, especially since you will have the upper hand in this market. However, information I have gathered from property owners & other real estate agents (including myself) involved in rent/lease to buy transactions is that less than 10% of the tenants actually end up buying the house they rented. Because the upfront money you pay for the option to buy in the future is usually non-refundable, you may not want to do a rent/lease to buy, becuase if you do not buy the property, you will probably lose the upfront money you paid. Also, these types of transactions usually have higher monthly rent amounts than standard rentals. So, you may want to consider just doing a normal rental & not a rent/lease to buy.
I hope this information will help you to make good real estate decisions.
HomeSmart Real Estate
Make sure you work with a lender to give you direction on closing in a year.
Most lease to purchase options require $5000 down. this is usually a home around $200,000. This was after extensive searchs in the area with a client. She ended up purchasing!
Feel free to call with any questions!