Lease Options are a good idea for the buyer in a normal market where prices are holding steady or showing a normal/conservative rate of value growth and are a great idea (if you can get them) in a market where prices are rapidly escalating. However, in a slowing or declining market they are not a good idea for a buyer at all.
Here's why, a Lease Option functions like a sale contract with an excessively long contingency period. In a sale contract time essentially stops at the moment the contract is written and agreed to by all parties involved. What I mean is that the price to be paid for the home is frozen so if homes in the area shoot up in value the lower price is locked in but if they decline then a higher price is locked in as well.
Also, in order for the Option to be a legal and binding contract some form of consideration must be exchanged, usually that is cash. And, usually a portion of the rent being paid is earmarked to be part of the down payment for the home as well. But, if the person who has the Option at the end of the Option period decides not to exercise their option to purchase the property or can't exercise their option because they are still unable to get a loan (either owing to their credit situation or to the homes inability to appraise for the value necessary to support the loan amount - a very real possibility in a declining market) then the monies paid to create the option and toward the potential down payment are kept by the seller and the buyer gets nothing back.
My advice would be to save your money right now and work on improving your credit. A good lender will be able to help advise you on what you need to do and how to do it to start that process. You may also find that even with your current credit situation you may be able to qualify for an FHA loan (their credit guidelines go pretty low) and that would be a much better idea. If you are going to become a homeowner then I think you should get all the benefits of home ownership including the tax benefits (something that the Lease Option won't give you) and not just the liabilities.
Homes will still be available in six months to a year from now when you are in a better position to purchase one. And by rebuilding your credit you will be much better off than you would be if you sink all your cash into a property with no guarantee that you will actually be able to own it and still have not learned how to manage your credit.
And if you do decide to continue to pursue a Lease Option don't make a move on a property without being represented by a Realtor. You need to have the home in question researched to make sure that at the time you are entering into the contract their are no liens or loans against the property that you are unaware of and that the mortgage is being paid so that the home does not get foreclosed upon out from under you. You also need to make sure that written into your contract is a protection for you and your money that ensures that you will get your Option money (not the rent part but the initial deposit and any overage that is supposed to go toward the down payment) back should the seller default or for any reason be unable to deliver the home with clear title and no liens at the time the option comes due , or if at any time during the option period the home goes into preforeclosure by having a Notice of Default filed against it.
Teresa keep in mind an agent is bound by certain legal obligations. Traditionally, these common-law obligations are to: Put the client's interests above anyone else's; Keep the client's information confidential; Obey the client's lawful instructions; Report to the client anything that would be useful; and Account to the client for any money involved.
NOTE: A REALTORÂ® is held to an even higher standard of conduct under the NARâ€™s Code of Ethics. In recent years, state laws have been passed setting up various duties for different types of agents. As you start working with a REALTORÂ®, ask for a clear explanation of your state's current regulations, so that you will know where you stand on these important matters.
Their is a big difference between a buyer's and a seller's broker
Suppose you sign an offer to buy a home for $150,000. You really want the property and there's a chance other offers are coming in, so you tell the broker that "We'll go up to $160,000 if we have to. But of course don't tell that to the seller." If you're dealing with a seller's agent, he or she may be duty-bound to tell the seller that important fact. In most states, the seller's agent doesn't have any duty of confidentiality toward you. Honest treatment might require that the agent warn you that "I must convey to the seller anything that would be useful so don't tell me anything you wouldn't tell the seller." So I reccomend buyers use a buyers broker. Bruce makes a great point on credentials look for a broker rather than simply a salesperson this is the only agent distinction conveyed by the California Department Of Real Estate between agents. You may ask does the agent have an active real estate license in good standing? To find this information, you can check the California Department Of Real Estate website http://www2.dre.ca.gov/PublicASP/pplinfo.asp on this website simply type in the agent name to see if they have a "clean" record you can also check their license status "Salesperson" or "Broker".
Other questions to ask:
Does the agent belong to the Multiple Listing Service (MLS) and/or a reliable online home buyerâ€™s search service? Multiple Listing Services are cooperative information networks of REALTORSÂ® that provide descriptions of most of the houses for sale in a particular region.
Is real estate their full-time career? A real full time agent has active listings and recent sales
What real estate designations does the agent hold?
Which party is he or she representing--you or the seller? This discussion is supposed to occur early on, at "first serious contact" with you. The agent should discuss your state's particular definitions of agency, so you'll know where you stand.
In exchange for your commitment, how will the agent help you accomplish your goals? Show you homes that meet your requirements and provide you with a list of the properties he or she is showing you?... more
Everything is negotiable when buying and selling paper. Just like when you buy a bond, the price paid will vary based on the terms of the bond. If the first has a favorable interest rate for the lender (ie interest rate higher than current rates) then they will likely want to charge a premium, if unfavorable, you should be able to buy at a discount. Also, if the loan is in default, their first price the bank gives to you will probably be the total amount owed them, including arrearages and collection costs. This is not necessarily their last price.
Remember, it is all negotiable. Make your offer and be prepared to walk away. If you are not prepared to walk away, then be prepared to pay whatever they ask. It truly depends on how invested you are in the final result. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty... more
I understand that if there was a tax lien, that would be first position, then the primary mortgage lien would be the 2nd lien. Could that by any chance be what you bought? If that's the case, just pay off the tax lien holder.... more
Did you mean the 2nd Mortgage? If so, contact your lender and get specifics as well as your auctioneer company and the auctioneer who is most likely licensed as well and can answer that question.... more
Good morning Teresa....
Napa is like most smaller communities and has its strong points as well as weak points. Kids today need consistent and loving parental guidence no matter which city they reside. If the kids come from a loving home where they are honored this will shine irregardless of the exterior environment.
I moved to Ca. in 1992 from the midwest and found the school system less than adequate in many communities. Overcrowded classrooms, unqualified teachers, low test scores, etc. I guess I was spoiled coming from the midwest. As a parent you must be diligent when researching local schools. Please use my website ( http://www.NapaOnTheWater.com ) and notice the left column of the front page and scroll to "Napa Schools" and click. Then once you are on the Napa Schools Page click on "Great Schools Info" and go from there. This website should help with other local questions, events, entertainment, etc. I have found a wonderful high School in Napa, New Technology High School, that has a great "hands on" approach. ( http://www.newtechhigh.org/Website2007/index.html )
Should you have additional questions I would be happy to give you some real answers. Napa is a great place to raise kids when you spend quality time with your children.
Thank you everyone for your answers.
Susan. I'd be interested in something up to $300,000. Small but clean is fine. If there is anything in the range, could you contact me at email@example.com? Thanks.... more
How about a reply from someone who is not a real estate professonal vying to get your business. The cost of living in the Napa valley is high. Most people I know, myself included, expect to retire someplace other than Napa (valley) because of the high cost of living. Restaurants are expensive, food is expensive... take a look at the published statistics. Investing in Napa is great - even in the current state of the economy, home values are staying fairly consistent/steady. Sonoma, on the other hand, is a beautiful little town and has some lovely retirement communities - and tends to be more "real", "down to earth", not as pompous as us Napans. I would recommend that you consider Sonoma for your retirement home. Good luck.... more