Susan the best and first place to start is with a local and trusted bank or mortgage company, they can prequailify you at no cost and let you know if there are any mortgages you quailify for. They can then break down the pros, cons and costs of each. Good luck... more
There are good and there are bad lease option programs. The bad ones are designed to collect the tenant buyer's money and have them wash out leaving their option money behind and another buyer comes in with new option money later. This is called "churning" and is not a fair way to do business.
A good lease option program is usually put together by an investor or group of investors looking for longer term income with a potential buyout later on. It may be difficult for a seller who feels the pressure of the next home forcing them into something that may not be the best for them right now. I agree with the other answer in that regard. It may take several years for the buyer to get their credit in order and qualify for the loan. Making the payments on time and handling their other responsibilities for 24-36 months would sure show that they not only can cover the payments, but they have their act together.
A win-win scenario sets up the buyer to succeed by asking reasonable payments and locking in a price that they can catch up to. (Bad programs increase the purchase price too large a percentage each year wiping out any chance of the buyer being able to qualify.) The down payment becomes a non refundable lease option payment which would be applied 100% towards the purchase price of the home. The monthly credit sould be structured to be equal to or just a little better than the principal portion of the current payments. In the first few years of a loan, that number is only 50, 60, 70 dollars a month or so. Making a flat $75 credit for each month rent paid on time, refunded at closing to be applied towards purchase is fair for both sides.
The buyer must concede that they are paying a little extra for the service that the seller provides. How else were they going to get into a home? The seller needs to be comfortable with getting the downpayment up front, making monthly cash flow (never, never go negative), and looking forward to the payout in the future. If the seller can view this as an investment and not a quick fix, it can work out. The rental income offsets the payments so your debt to income ratio is not hammered as bad as having the property sit there empty.
One way to do this with less of a headache is to have an investor buy the home but keep the existing financing in place. In this setup, you are not a landlord, but you are now the bank. You can get a little cash up front, pay your realtor if listed, and the investor handles putting a tenant buyer in place. Once the buyer cashes out the investor in a few years, the loan is gone off your books. You get the new house you want now, your payments on the old house are covered, the investor manages the process, and it is all over in a few years. The alternative is to lose your deposit on the new home, and to start all over in a few years.
Tom and Sue: A Lease/Option may be a good bet in some cases, but it doesn't sound like the best fit for you. Generally, you lease out your home to a tenant who also signs an agreement to purchase your house at some future date at a price you have negotiated. For this privilege, they pay you an "option fee" which effectively takes the home off the market while they decide whether they want to buy it or not. In other words, you might agree with your tenant to sell them the house within 6 months for $200,000.00. They give you $2000.00 option fee (which is their way of saying "we have the OPTION to buy your house if we want any time in those 6 months") and they rent from you until the option is exercised, expires, (they lose the $2K to you) or gets extended.
In practice in our area, few of these options work out in a residential setting. The banks have cheap money to loan for folks with good credit; those who ask for an option either have little or no down payment, a credit history that is not favorable, or need time to rebuild credit or cash to make it all happen.
If they end up NOT liking your house after renting it, they can walk away with little recourse.
I hope you can just sell it - looks like that would be the best alternative. You might check with your broker, banker, accountant, or attorney who know you situation better than I do. These are just guidelines based on about 20 years in the trenches.... more