First, when it comes to exercising your option to purchase the home, the lender who is doing the purchase does an appraisal, and if the purchase price in your lease-option is higher than the appraised value, then you need to bring in that difference + the down payment requirement for the mortgage program... or to avoid having to bring in the difference, you need to get the seller to renegotiate the purchase price to meet the appraised value. For example if the lease-option purchase price is $150k, and the appraisal comes in at $145k, and you are using FHA financing (3.5% down payment) you need to bring in the $5k difference in the price vs. appraisal + the 3.5% down payment ($5,075) on the $145k sales price. Your initial down payment of 5% on the lease-option can go towards that amount, but it can create more money due from you than you may be expecting.
Secondly, the amount you refer to as a "percentage of my monthly rent goes towards owning" is called a "rent credit". The amount of rent credit that the lender will give you credit for will be the lesser of the amount you and the seller agree on OR the amount in excess of the average market rent determined by the appraiser on what is called a "rental survey" (part of the appraisal). So if you are paying $1,000/mo in rent with $100/mo if it going towards the down payment, and the market rent per the appraiser's rental survey is only $950/mo, then the lender will only give you credit for $50/mo instead of the $100/mo you and the seller have agreed on.
Third, some property owners/sellers who are trying the lease-purchase are underwater on their mortgages themselves, and are just using this as a way to collect an upfront large sum of money along with a little higher rents, all while not making their mortgage payments and walking away never to be heard of again - once the bank takes the home back, you are out. That isn't always the case, but it can be. So, check out the person you are getting into contract with as much as they are checking you out (your real estate agent can help you vet the seller, so pick a good one who has experience with lease-options).
Shane Milne | Lending in all 50 states | NMLS #81195
The foreclosure issue is a serious one that Shane mentioned-especially in NV. How will you know when the home owner isnâ€™t paying his mortgage. Lien holders have NOT been processing the Notice of Defaults (NOD) which would have given you the heads up that they have stopped paying.
AB284 passed by NV legislatures this past year, response to the ROBO signing, which has made it difficult for the lien holders to process the NODâ€™s which has basically put a moratorium on the foreclosure market and that is one reason why we are down in inventory supply from a 6 months to a 1.4 month supply (extreme shortage of listings).
Key point is you, as the buyer, will not know if the seller is making his payment because the lien holder will not likely put a NOD on the property for a LONG time. If the home owner isnâ€™t paying his mortgage, they likely will not be paying their HOA & sewer (unless you are required via the agreement). Hence, other liens will be put on the property that will need to be paid prior to closing if it happens. If the home owner wasnâ€™t paying them to begin with, I seriously doubt they will pay the lien to allow you to close.
FYI: HOAâ€™s, in NV, are moving to foreclose/sell the property to collect past dues. In NV HOAâ€™s have super priority liens, which means they can take the house from a non-paying home owner fairly easily. They haven't done it in the past bue they are in fact doing it now!
Typically when you rent, the home owner pays the HOA so you may not ever know the seller isnâ€™t paying their fees. You also would not likely know if and when the HOA is going to sell the home to collect their fees because they correspond only with the home owner who is on the deed. Unlike what the lien holders have been doing, HOAâ€™s are doing this in 121 days. Make no mistake, they are doing this in NV because so many HOAâ€™s are struggling with the loss of revenue from upside down home owners.
Sorry about being Negative Nellie but someone who wants to sell you a home this way, isn't going to tell you about ALL the risks and concerns you are exposing yourself to-especially true when considering the Las Vegas market.
If you do proceed, get the best in the industry and have an attorney help you review the contract.
If your credit doesn't improve by the time you are required to purchase the home under lease option, then you failed on your side of the contract and risk flushing every penny you paid into the deal down the toilet: down payment, repairs, typically a higher rent. Add to the fact that very few homes are offered as a lease option which means you have extremely limited selection...why would you want to put yourself into that situation.
If you do a lease option, you will likely pay a higher rent fees than market, pay all the repair fees of the home, pay a down, but if you don't close on time, the seller will likely cancel the contract and then find another fool who is willing to risk everything just to own a piece of real estate at all cost.
Credit takes time to repair, and more often than not it isn't done in the timeline you expect it to be but the contract will spell out the timeline you are legally obligated to close the deal. If you think the seller will be understanding, think twice before you go down that road. The seller is making more than what they would have made under a straight sell and or a regular lease..... you not performing allows them to do it again with another lease option tenant/buyer. Not all lease option sellers are trying to rip you off but the nature of this beast puts you in a dangerous position.
BUYER BEWARE and unless you have a good real estate contract ATTORNEY, then you are the one most at risk.
Keller Williams Realty Las Vegas