Did you know you can buy a house without any credit and without a lot of money?
There are several avenues to do this. Today we will just focus on one that I personally know very well. While I have used others many times in business, I purchased my personal home 14 years ago with a lease to purchase, not for qualification reasons but as a vehicle to a faster close (they sellers lived in France at the time of my purchase and I needed to close in 7 days with a mortgage).
This is another topic that was covered in RE School, something that interested me at the time so I paid very close attention. I can tell you that over the course of my career it has made me several hundred thousand dollars both directly and indirectly. Directly helping those who can’t qualify buy and indirectly by helping sell homes that were having trouble selling (especially those under water).
If done properly, a lease to purchase is a two-document vehicle which should always live and die with each other. That is very important, it is imperative if you are the seller to ensure the sale document dies if the lease document should become breached. As you probably have figured out, I am talking about a separate lease contract and a purchase contract.
The lease is drawn up to be a standard lease but should be timed in such a way that the buyer has time to repair the reason they cannot purchase today, IE if they have a 510 credit score and need to pay off $1000 in bills to later qualify, 12 months should easily be enough time, if they have a 300 credit score you may need 24 months.
When I draw up a lease to purchase I do so as two totally separate documents which live by one another. This means I place language in each that clearly states should one document be in breach the second is also in breach. I then write the lease deposits as a separate item from earnest deposits.
Warning, this does take some work so it is unlikely a great deal of agents will want to try it, however many Realtors can stand to make a lot more money if they offer lease to purchase. You can make an offer on ANY property with a lease to purchase offer and before you shake your head, think if your house was a little over priced and you see a 12 month lease to purchase with $2,500 per month lease payments (based on what a mortgage would be) and $3,750.00 in refundable deposits for the lease and a $10,000 earnest deposit which is completely non-refundable and immediately released to the seller you would not seriously consider it? I would and I know for a fact a lot of others will as well.
The reason this is not always a popular option for buyers is agents MUST work with clients over that 12 months to be sure they actually prepare to execute the purchase. The agent must communicate well that the $10,000 they put down is gone if they do not comply with the contract and the seller is under NO obligation to extend the deal. For the best shot at success, I always recommend working with both the agent and the lender to make sure the buyer is heading in the right direction.