We found a house to buy,we have $15k-cash, low credit rate, want to lease to buy or other optiions-HELP!

Asked by Michelle, Bakersfield, CA Sun May 4, 2008

What about owner transfer mortgage, owner carry note, lease to buy. What is your opinion. Our mortgage broker says could be up to six months before we qualify. Don't want to wait, and miss out on this house.

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Ana, Both Buyer And Seller, sb
Sun May 4, 2008
fha loan up to 769,000 3%down not credit driven
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Don Tepper, Agent, Burke, VA
Sun May 4, 2008
A lease-option, lease-purchase, or seller financing could work for you. So could using an Illinois-style land trust.

First thing, though: Do you know (or do you have reason to believe) that the owner doesn't need all his equity out immediately? A lease-option, lease-purchase, or land trust arrangement will work only if the owner can wait for his equity.

Second thing: How certain are you that you want the house? A lot of agents here will advise you to wait until you can qualify for the mortgage, even if you lose the house. And sometimes that's the best advice. Now, if you're absolutely certain you want the house...your mortgage broker says that you should be able to raise your credit score sufficiently in 9-12 months (6 months is really very short)...and you're willing to put some option money at risk in the event you change your mind (or can't qualify for the mortgage), then consider going ahead.

The safest course of action for you would be seller financing. You buy the house. You take title to it. It's in your name. The owner is providing financing, and when your credit score improves sufficiently, you'd refinance and cash the owner out. Your risk is that your credit score wouldn't improve sufficiently in time to refinance. And, depending on how the loan was structured with the seller (for instance, without an extension period built in), you could find yourself foreclosed upon.

An Illinois-style land trust would be nearly as safe, and in some ways even safer. It's kind of complicated, but basically the owner would move the property into a land trust. You'd be added as a co-beneficiary. The documents would specify the length of the trust, as well as all the other details. At the end of the trust (or during), the house would be brought out of the trust and you'd be given the right to purchase the property.

A lease-option or lease-purchase would work, too, but isn't as safe for you because the deed isn't put in your name unless and until you exercise the option or proceed with the purchase. However, if the paperwork is properly drawn up, it's pretty safe.

Just one additional piece of advice: Even though your mortgage broker says you might be able to qualify in six months or less, allow much longer for the lease-option, refinance, or land trust. Aim for 3 years. Don't settle for less than 2. And make sure your agreement provides that the arrangement can be extended (preferably for a year, at a minimum six months) upon a defined additional payment from you.

Hope that helps.
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