You may have heard the term “rent to own” or “lease option” or “lease purchase” when it comes to buying a home. The legal instruments used to arrange that type of transaction have changed over the years, but ultimately the purpose is the same; home buyers arrange the home purchase with the seller, outside of traditional financing in order to secure a home when they might not otherwise be able to obtain financing.
In these rent to own scenarios, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property. The terms, with regard to the amount of deposit, whether or not a portion of the payments go towards the down payment or reduce the sales price or how much the property will be purchased for at the time of exercising the option, are all up for negotiation.
In today’s market, there are not many sellers whose current mortgage terms allow them to do this and there are fewer sellers who own their property outright. Therefore this is not very common. There are schemes out there involving so-called wraparound mortgages, a type of creative seller financing that is legal in Texas. But critics say they are too risky and invite fraud and theft. Lawyers representing local victims say many of their clients have had their credit ruined and their savings wiped out. Many buyers and sellers have fallen victim to this scam, where a third party (A) convinces the seller (B) to sell their property to a buyer (C) brought by the third party (A). Basically A creates a wrap around mortgage on B’s property and takes over making the payments on B’s existing mortgage. C makes payments to A, but A doesn’t pay B’s mortgage as promised. Eventually the property will be foreclosed, B’s credit gets ruined and C gets evicted and loses all the money they paid.
You may be able to find owner financing on a home that is paid free and clear and the seller feels like they can take the risk of acting as the lender. An attorney should draw up these documents. It’s all perfectly legal, but opportunities like this would be few and far between as most people just want to sell and take their equity and move on. If you come across an offer like this, especially on Craigslist or the likes, beware. There are a lot of scams out there. Contact me and I can help you determine if it’s legitimate.
The good news is that there is now a legal, trustworthy and completely transparent way to get into a home, as a tenant, and eventually buy that home at an agreed upon price.
There are two companies that are RE/MAX approved suppliers that can help people get into a home with a lease purchase.
This unique program is a public-private partnership utilizing an FHA loan program to to a lease purchase on the home of your choice. Rent for up to three years and then assume the loan when you can qualify on your own. This program gives you the time you need to build your credit history, save some more money while building home equity you can use toward your purchase. Lock in your future home price at today’s cost plus a conversion fee. Compare that to just renting, where you pay thousands of dollars year after year without seeing a payback – building someone else’s future, not your own. Get more info here.
HOME PARTNERS OF AMERICA
Another option is through Home Partners of America, responsible households are provided with a transparent path to homeownership through its Lease with a Right to Purchase Program. If you are still working to rebuild your credit, save for a down payment, or need to have two years self employed tax returns under your belt before you buy, this is a great program for that transition period. It’s also great for people moving to the area who are waiting for their house to sell elsewhere. If you would like more information about how Home Partners of America works, CLICK HERE. Personally I prefer the MOTTO LTO program because you are building equity and you secure your loan when you start the lease.
If you aren’t quite ready to buy yet, but you are ready to settle down and start building equity instead of throwing away money in rent, let’s meet and see what we can do to get you in a home now. I have also helped clients go the traditional route by finding other market opportunities for purchasing and financing.
There are pros and cons of course and everyone’s situation is different. If you would like to meet and discuss these programs and see if they are right for you, please call me at 512-966-6540 or email me at email@example.com