On occasion, I come across creative options such as
lease-to-own, rent-to-own, and owner-finance deals.
This creative finance option could be the perfect solution if you’re currently unable to qualify for a traditional home loan.
Sometimes referred to as a lease purchase, lease to purchase, lease to buy, rent to buy, lease option, rent with an option to buy, lease to own, lease with option to purchase, and rent with option to purchase, etc.
RENT-TO-OWN - Lease-To-Own OPTIONS
In my opinion, lease-to-own or rent-to-own is one of the best ways to purchase a home if you’re unable to qualify for traditional lending. With this option, a portion of your monthly rent payment goes towards your down payment.
The positives include:
- You don’t need a lump sum of money up front to purchase your home.
- You avoid paying costly private mortgage insurance while enjoying the benefits of living in the property.
- Flexibility to decide whether to purchase at the end of rental period.
- Time to improve a low credit rating or address other lender concerns.
- Potential to build equity in the property.
Although individual Sellers may have their own specific requirements, the basics usually include:
- Steady job history (at least one year full time employment) or other steady income for each Buyer.
- Enough cash on hand to a pay screening fee, first month rent, and deposit upon approval.
OWNER FINANCE OPTION
Owner-finance deals are more common in a buyer’s market, when supply exceeds demand. The Seller may require a down payment has high as 15% to protect his/her interest, and the deed is not typically transferred to Buyer until all payments are made.
On the plus side, since institutional lenders aren’t involved, financing terms are more negotiable — and you save money on points and closing costs!
The majority of property offered under these options are not contingent upon appraisal, so it’s to your benefit to conduct due dilligence. As with any creative financing option, you should also carefully review the contract with an attorney, financial advisor or other trusted expert.