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Let’s be hones, the current lending situation sucks. Sub prime lending industry disappeared literally overnight, banks stopped giving out loans to everyone and their sister. The situation is such that if your credit is less then perfect, no bank will lend you money to buy your own home. So the only option is to rent? Not exactly. There are still couple ways to make your dreams come true. Those creative solutions are: lease option, take over payments and owner financing.
Today we will take a closer look at the Lease Option, also called Lease Purchase or Rent to Own. Like name implies there are two ingredients in this cocktail.
First ingredient is the lease. You are renting your dream home and get to enjoy almost all of the benefits that home ownership offers. You can try out the schools, shopping and dining in the neighborhood and the home itself. This lease period gives you time to improve you credit situation to be able to qualify for an excellent loan.
Second ingredient is the Option. An option give you an exclusive option to buy the home for a set period of time – the seller is obligated to sell but you are not obligated to buy. So if after living in the home for 6 months you realize that this is not the home for you can walk away and not buy this home. The downside of doing this is that you loose your option fee which is non refundable.
The only difference between Lease purchase/rent to own and the lease option is that you are obligated to buy at the end of the lease period in lease purchase case.
To get into your dream home on a lease option program require a little bit of capital up front. Option fee is from $3,000 to $10,000 and largely depends on the price of the home. Expect to pay $3,000 for a home around $150,000 and closer to $7,000 for a home worth $300,000. Do not forget that the rent is paid in advance, so you will have to come up with first month’s leas payment at the time of move in also. If you do not have full option payment amount, part of can be spread out in terms of monthly payments.
As far as monthly lease payments, expect to pay market rent with no money going towards purchase price, but you may elect to pay extra to accumulate bigger down payment for the purchase day.
Next time we will tackle how to buy the home by taking over payments on existing financing.
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