topic Re: info on lease with contract to purchase in Mortgage Loans

info on lease with contract to purchase

Anonymous — Sat, 10 Aug 2013 00:12:26 GMT

Hi ya'll I have a question for you, I am interested in a house that an investor is rebuilding/remodeling. I want to go out for a fha loan but at this point my credit scores are not where they should be they are 577, 578 and 568. I know I can't get a loan on that so I have a credit repair company looking into it. My LO stated once my credit scores are good then I have a strong file for a loan. The repair company stated it should take 2 to 4 mths to get my credit fixed. So here is my questions. The investor stated he should be done within a month and would lease the house with a contract to purchase. Should I do that and what are some things that I should look out for or do if I do that? What are the stipulations on something like that with a fha loan? Thanks so much, since I have started this little journey you guys have become family lol I'm addicted to these forums.

Re: info on lease with contract to purchase

IOBA — Sun, 11 Aug 2013 00:28:42 GMT

Oh man, if it were me, I would set a close date for a year out. JUST in case your credit is not repaired in 2-4 months as promised. I am not sure credit repair companies can do that, but I am not them and I dont know what is wrong with your credit.

When the credit repair company says everything is fixed, you can apply for a loan, to see if you qualify. If you do, go forward, and close before the contractual "close" date. I am sure the owner would be happy with that! Happy with you closing sooner rather than later.

Re: info on lease with contract to purchase

Anonymous — Sun, 11 Aug 2013 01:46:48 GMT

Here's how it typically works, ill use a year lease. You pick a price that at a time over the next year you can purchase the house for that price. You then come up with the monthly rent. Usually the rent is set at market value, then add a few hundred. Lets says 1500$ is market value. The owner would then say its 1700 and 200 out of that goes towards downpaymet, closing costs or whatever. If you end up not buying the house that money is forfeited. Obviously its up to you to negotiate the rent price and how much you get back In the end. There lots of other things that can come up. Some sellers want a big deposit, things like if the market is estimated to go up he may want you to agree on a price based on what the price would be in a year. Tons of stuff to think about

Re: info on lease with contract to purchase

StartingOver10 — Sun, 11 Aug 2013 12:21:03 GMT

Nebunatyk is right. I'll add one thing though, if you try to pay market rent and want any portion of the actual market rent to go toward your down payment, the lender won't use those funds toward your down payment. As Nebunatyk mentioned only the funds above market rent can be used toward down payment. In other words, lenders have guidelines on how the lease purchase can be financed at the end of the term too. Speak to the LO where you plan to get your mortgage. Ask about their guidelines on lease purchase properties so you can structure your lease purchase within guidelines, but favorable to you.

IOBA is right about 2 to 4 months being too short a time to guarantee that you will have your credit rehabbed and be able to close on the purchase. Leave yourself enough time.

Re: info on lease with contract to purchase

Anonymous — Sun, 11 Aug 2013 13:11:55 GMT

Thank you guys so much. The time frame was making me nervous as well. It all makes me nervous lol. Another question for you when and how would I get a appraisal and inspection on that type of contract? Would I need to get two?

Re: info on lease with contract to purchase

IOBA — Sun, 11 Aug 2013 20:43:02 GMT

I would. I would want to know if the purchase price is comparable/fair. And I would want to know if there were any issues with the house. Knowing issues, like faulty electrical, would be a benefit to you when you are negoitating the price/the term.

At the end, when you get bank financing, you will need to go through another appraisal and another inspection (<---- most likely).

My friends did two lease to owns.

1. First house, no inspection, no appraisal. Three hundred went towards down payment. THey had 18 months to get their own financing. During the 15 months they were in the house, they noticed/learned of problems. The house was "2 yrs new" but no warranty. The friends tried to renegiotate the terms (price, I think, plus some work) and the landlord said no. So at the end of their lease, 18 months, they moved out. They forfeited the money. They decided later to try to sue them for not providing "livable and safe" rental. I want to say that the house settled, doors wouldn't close, and a pipe was leaking. Landlord wouldn't fix it. Tenants wouldn't fix it.

2. Second house, no inspection, no appraisal. Three hundred towads down payment. Twelve month lease. They figured they would know if they wanted the house at the end of 12 months. They ended up staying and renegoitating. Didn't buy the house, but continued paying the high price for another four or five years. Renewing the lease after the first year, same terms. I think after that, it was a verbal month to month until they could get financed, up to five years total time. They started doing work in the house while they lived there! Never did close on the deal. Couldn't get financed. Wife ended up with a "like" to spending money. They divorced and she stayed until she was evicted.

Re: info on lease with contract to purchase

IOBA — Sun, 11 Aug 2013 20:48:39 GMT

PS - I have another Friend who is doing a lease to own now. Not sure how much rent goes towards down payment. They lost their house to foreclosure. (totally stupid - they had plenty of income to pay off their mortgage super early)

They pay rent, two year agreement. She had an inspection and negotiated before moving in. The price of the house will be based on then current market value plus the future market value (what it is when she can get financing). They will split the difference, if there is one.

So if the house had a market value of $200k when she moved in and the value went up to $300k when she could finance, there's a difference of $100k. She would pay $250k for the house.

If the market value was $200k and dropped to $100k, that's a difference of $100k. She would have to pay $150k for it.

The landlord strongly encouraged her to go ahead and do whatever improvements she wants to the house, like new windows, etc.

Btw, it's been more than 2 years and she can't finance. She hasn't signed another contract. They go month to month. The landlord has not said the original agreement is still in place. And she hasn't asked...she just assumes it is. And there's no valid, signed contract for the month to month.

Re: info on lease with contract to purchase

Anonymous — Tue, 13 Aug 2013 23:32:51 GMT

Thank you IOBA. I will definitely be getting the appraisal and a inspection first. You guys have all been so helpful and put my mind at ease. I know if that house is to mine it will be and if not there is sonething better on the horizon. I'm sure more questions will arise in the future, thanks again.

Re: info on lease with contract to purchase

smiths38 — Wed, 14 Aug 2013 09:05:33 GMT

There is no way that the credit repair company can say for a fact how long it will take to repair your credit.It's just not that simple and they make it sound so easy.I am speaking from experience.I hired one of the big credit repair companies and they did very little to help and I fired them.I took to these forums and discovered how to raise

my credit score by lowering my credit card balances,and even with some negatives on my report,I closed on a beautiful home on May 31st.