I am renting a house right now and the owner is looking into offering me a "Lease with Option to buy". Does that mean I take over the mortgage payments yet he still holds the title until I am able to buy?
5 thoughts on “I live in Calif. and am having a hard time purchasing a home.I'm renting.What is "lease with option to buy"?”
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Back dating constitutes fraud. Stay away from that.
Land contracts are not a good way to go, seller financing is a cleaner way to go. If you fail to make the payments the seller simply forecloses. If you contract for deed it stays in their name until a future date before transferring to your name. If the person dies before you transfer the deal gets considerably complicated, the estate may not want to do the deal, then you are in a lawsuit.
You are far less protected in a contract for deed. What if the seller fails to maintain the payments on the property but does not tell you? YOU LOOSE! That situation I have seen happen, especially in a down market.
Rent to own means just that: you pay an agreed rent amount, a portion goes toward a purchase at the end of a lease or failing to exercise the purchase all funds are considered rents. Sometimes the Lessor will straight out allow a portion of the rents to go towards the purchase, sometimes additional funds are mounted on top of the rents. You can construct the deal several different ways, but use a licensed real estate broker for best direction, that is what they do.
Lease with option to buy, is the owner will aply the money you pay towards the buy price, he holds the title till the house is payd for, or when you have payd enugh that the bank can take over the loan, than the bank gets the title, also till the loan is payd in full, good luck
Usually that means that you will be paying above market rents, with a portion of the rent being kept for a down payment or equity on the house. After a certain time the landlord/seller will sell you the house and you will be able to qualify for a loan because you have already made a down payment, or the landlord/seller will hold a mortgage for you.
The pitfalls are making sure there is up front agreement on the terms: the selling price, the proportion of your rent that is going towards the purchase price, and how the option to buy is spelled out.
You really should consult a real estate lawyer before agreeing to anything along these lines.
Hi! A "Lease w/ option to buy" is usually used by people who cant qualify for a home loan on their own (because of bad credit or no credit). If you want to buy this house then this is what you need to do! First, you need to agree HOW MUCH he is going to sell you the house for. Typically, an owner will get an appraisal down to determine the value of the home and agree to sell it to you for that amount MINUS ALL payments you have made to him until you qualify for a loan on your own. Tip: negotiate for a lower price..he probably will sell LESS than appraisal value because he just wants to pay off HIS loan on the home. Second, go online or to an office supply store and find a CONTRACT FOR DEED ($5). This will be the contract you agree upon. It defines what the house will be sold to you for and in what time frame. Typically, you must live under contract for 1yr and show proof of payments, so ALWAYS pay by check..never cashiers check or cash. Always make sure it is YOUR name on the check not a friend or other family member. Tip to bend the rules: "BACK DATE" a CONTRACT FOR DEED from the original day you moved in. This will allow you to apply all previous payments. What do I mean? When you "buy the house" you will need to show 12 months of proof of payment, this will shorten the time for you because he dated your contract from the date you moved in and not from day one of when the contract took place. Technically, you are not PURCHASING the house and you should not have to come up with $ for closing costs. You are technically REFINANCING into ownership. Benefit: you get to access all equity in the home for home improvements or bill consolidation if you wish and if he is cool and leaves you some EQUITY in the home. Sorry if I’m confusing you! Basically, you make the payments on the home for a set period of time until you are able to qualify for a loan on your own. Tip: This is tricky, but if he is willing to put you on the TITLE of the home to show Good Faith then you’ve positioned yourself in an amazing position. Now he can’t do ANYTHING with the property AT ALL unless he has your approval. Wether you buy, he sell to someone else, or anything. Tuff but I’ve seen it done. My advice, learn how to read a credit report (library or book store), view your credit, fix it, and get the best loan ever. Good Luck!
Rent vs. Buy as Housing Market Continues to Slump
As housing market slump, it is easier to calculate "Rent vs. Buy" scenario. Because "appreciation" is no longer a factor.
Mortgage payment consists of two parts: interests and principal. Interests are like rent, which doesn’t add to the equity to your house. It simply disappear as your pay it.
If interests portion of the mortgage payment is roughly equal to rent of equivalent property, then it is a decent buy.
For example, let’s buy a $500,000 condo with 0% down and apply interests only loan (just like renting a place). Mortgage payment would be $3250/month. It is a bad buy, because you can enjoy same property for $2000/month.
Please note that I assume the tax benefits from home cancel out fees from home association and property tax. For more accurate calculation, consult with your CPA or accountant. But NOT your realtor, whom will say anything to get the deal to go through.
And again, if you like a particular property, then paying more may be reasonable. You are the only person who can decide how much more premium you are willing to pay.
http://biz.yahoo.com/brn/060909/19463.html
http://money.cnn.com/2006/09/08/real_estate/caught_in_the_bubble/index.htm?postversion=2006090814
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514