First Time Homebuyer Information & Education
Lease Option Purchase
Lease Option Purchase - A Lease Option purchase is an agreement entered into between a buyer and a seller where the buyer leases the property for a pre-determined amount of time, usually twelve months.
When the lender treats this transaction as a refinance, they want to see the house payment history. It is very important to make the house payments on time. Also, the borrower must keep records of the payment. The best way to keep track the payment is to make the payment using hand written checks, and to keep the copies of the "cancelled" checks in order to provide them upon the lender's request. The lender doesn't like to see either receipt of money order or cash since it is difficult to tell whether the borrower made the payments on time.
As a potential borrower you may be charged an upfront non refundable fee to enter into a Lease Option. This fee sometimes does not apply to the final purchase price of the home. Always be sure to read and fully understand any lease option purchase agreement you sign.
When entering into a lease option agreement, it is best to speak with a mortgage broker about getting pre-approved for a mortgage. A mortgage broker can identify any potential obstacles standing in the way of you being approved for financing and tell you how to fix them.
When doing lease options it is a good idea to make the lease convertible. By doing so if the tenant/borrower is unable to get conventional financing later, the lease can retroactively be converted to a mortgage then sold on the secondary market as seasoned.
The benefits for a home buyer to purchase a new home through lease options might come in the form of simple credit qualifications. Also, most lease options require small down payment requirements. Another benefit would allow a buyer to lock into a low purchase price.
Lease-to-own purchase - "What is a lease-to-own purchase? And how does it work?"
Lending guidelines differ between lenders so make sure the lease purchase agreement is underwriter friendly. Have a lender underwriter review the agreement before you sign.
Most lease to own agreements do not credit dollars paid during the lease to the purchase of the home, however, some homeowners may be willing to credit those dollars and negotiate that stipulation into the agreement if the home is purchased prior to the expiration of the agreement.
A lease-to-own purchase can be an attractive alternative if you presently have limited funds.
A lease-to-own or rent-to-own purchase is often used when a buyer cannot qualify for a mortgage, but has found the home they want to buy.
If you don't qualify for the loan at the end of the lease period and have to find a place to live, chances are you'll also lose your downpayment that you've been putting in monthly.
Although some what risky for the borrowers a lease option purchase is a great way for borrowers with slight credit issues to get into a home of their own.
Use a land contract instead and do as a refi 12 months after moving in. Make sure all utilities are in the clients name as well as having cancelled checks or money orders to support rental history.
If your lease is properly structured and meets certain guidelines, some lenders allow the property to be refinanced in the lessee's name by using the lease's selling amount as opposed to the new appraisal.
If you plan on using a lease-purchase for your next home it is important to obtain the aid of a knowledgeable and trustworthy attorney. Taking precautions to protect your equity investment costs a little more upfront but will provide peace of mind and security until you are ready to purchase.
Once you have found the home that you are going to Lease Purchase, it is a good idea to start talkign with a mortgage professional. They can guide you down the road that will lead you to purchasing the home when the lease purchase term is up.
Information listed above is to be used for educational purposes only and is not guaranteed
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