You may have heard the terms “rent to own”, “lease option”, “lease purchase” or “lease to own” 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 at the current time.
In traditional rent to own scenarios, a property owner and a 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 of the arrangement, 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 and are able to make a rent to own arrangement. Therefore this is not very common.
Wrap Around Mortgages
Wrap Around Mortgages are making a comeback, but can be very complicated and ripe for fraud. Be careful if you come across a home that is owned by someone different that the person who is offering the lease to own arrangement. If it seems quick and easy, it’s probably a red flag. There are schemes out there they may seem like a wraparound mortgage situation, but it may be someone trying to profit off of a seller’s misfortune and a buyers desperation. Even for legitimate Wrap Around Mortgages, there is still a risk for the buyer because the seller is still liable for the mortgage. For instance, if the seller defaults on their loan, it could result in foreclosure, meaning everything that you invested into purchasing the home is now gone. It’s risky. Additionally, because wraparound mortgages only work on assumable loans, the process can take longer than a traditional mortgage.
Traditional Seller Financing
In recent years these were hard to come by because sellers didn’t need to get creative to sell their home. In today’s market, things have changed. Sellers who are in a financial position to offer seller financing (or lease to own) may be inclined to do this to get the home under contract. They basically act as the bank and you pay them. An attorney will need to represent you to ensure that you are protected in the contract, legally and financially. 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, Facebook or a hand written road sign, 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 are now a legal, trustworthy and completely transparent ways to get into a home, as a tenant, and eventually buy that home at an agreed upon price.
HOME PARTNERS OF AMERICA
Home Partners of America is a program where you can choose the home you want now and then obtain financing at a later date. Tenants are provided 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. Or for those who had to do a short sale in another market due to various circumstances, but still want to own a home. If you would like more information about how Home Partners of America works, CLICK HERE
Keep in mind with this program, you are not building equity in the home. It is purely a rental with the option to purchase it at a later date. The terms and costs are clearly spelled out prior to contracting. If you view listing on their website, it is for homes currently listed for sale. You find the home you want and then Home Partners purchases the home and leases it back to you until you can get a mortgage to buy it from them. There is a time limit and costs associated.
Loan Programs
Sometimes, with the right knowledge and direction from experienced real estate professionals and a local lender, you might be in a stronger buying position than you think. You don’t need 20% down to buy a home in today’s market. There are other loan programs out there that are geared to first time buyers with good credit and income who may just be short on cash for the downpayment and closing costs. Down Payment Assistance DPA-FHA programs and USDA loans are two good ways to get into a home with little to even no money down. VA and FHA loans are also an option.
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 clegrand@cedarparktxliving.com
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