UT mortgages : UT mortgage rates and home loans

Strategies for 2010

Lease to Purchase (Lease Option)

The Smart Choice

Tenant/Buyer Features & Benefits

If you are in the market to buy a home, you are probably aware of the advantages home ownership provides (tax shelter, appreciation, security, etc). If you are actively seeking homes for sale on a Lease to Purchase agreement, you are either (1) a very smart renter, (2) a very smart real estate investor, (3) not ready to make a commitment, (4) cannot yet purchase a home through conventional means or (5) any combination of the aforementioned.

The Lease to Purchase contract provides you with many features and benefits, but perhaps the most powerful one is the rate at which you accumulate equity. Compare any lender’s loan amortization schedule to that of a Lease to Purchase contract and you’ll quickly see that the Lease to Purchase contract wins hands-down — every time. Moreover, the buying power of a Lease to Purchase contract can quickly and easily land you a home that you could only dream of buying the conventional way.

Here are some features and benefits for the tenant/buyer:

* Faster equity growth: Equity accumulates much faster (five times or more!) than with conventional financing through a bank or lender.

* Rent money is working towards purchase: Every month a portion of your rental payment (typically $100-$500) may be credited towards your down payment or off of the sales price.

* Option money is credited towards purchase: When you sign a Lease to Purchase contract, you will pay the seller an option deposit. This money is your vested interest in the home and will be fully (100%) credited to you when you buy the home.

* Minimum cash out of pocket: When you purchase a home the conventional way, you must pay at least 5% down plus closing costs and prepaid fees. When you buy with a Lease to Purchase, you only pay first month’s rent and a small option deposit. This will save you between 25% and 85% every time you buy a home.

* Frequently no down payment at close: Since you have given the seller an option deposit and you have been receiving monthly rent credits, there will frequently be very little or nothing left to pay for a down payment at closing.

* Profits from appreciation: Since the sales price is usually locked in before closing (as specified in your agreement), any increase in property value will mean that your equity (what you owe minus what it’s worth) is increasing in the home.

* Possible sale for a profit: If you are allowed to sell (assign) your option (it will be in your agreement), you may sell it to a third party for a profit.

* Increased buying power: When you buy a Lease to Purchase home, you can put down as little as first month’s rent and a $1 option deposit. Compare that to a typical bank or lender who requires 5-30% down plus closing costs and prepaids.

* Credit problems okay: Qualification restrictions simply do not exist. You will be approved at the sole discretion of the landlord/seller.

* No lengthy escrows or mortgage approvals: Your approval will be based solely at the discretion of the landlord/seller instead of a lender who can take up to a month (or longer) to render a decision.

* Control of the home: You will be put in full legal control of the home for a specified period of time without actually having to own it.

* No taxes, less liability: Since you do not own the home (yet), you will not have to pay property taxes and your liability exposure will be dramatically reduced.

* Quick move in time: You can typically take possession of the home in a week or less, instead of conventional move in times of one to three months, after your offer was accepted.

* Maximum leverage: You are spending very little (or zero) money to control a potentially very expensive, and very profitable, piece of real estate.

* Time: Before you actually buy the home, you will have 3-24 months (depending on your agreement) to repair your credit, find the best interest rates, investigate the home and research the neighborhood and/or schools.

* Minimal maintenance: Large maintenance problems or any maintenance problems that exceed a certain amount of money can be delegated to the landlord/seller, if pre agreed.

* Privacy: Your name will not be on the title or in the public records until you exercise your option to buy or choose to register it on title.

* Peace of mind: You will have full control of the home and can maintain or improve it however you wish.

Lease Options in Utah - Four Things Every Buyer Should Do

I saw an interesting article passed on by Nigel in the Salt Lake Tribune yesterday about the rise of lease options being used in he Valley. A lease option is a type of seller financing I think will become very popular for first time home buyers and people with bad credit who want to buy homes.

The Tribune writes -

Home sales are down in many areas locally, in great part because some buyers are having difficulty qualifying for loans under tighter lending criteria put in place after the nation's subprime lending meltdown.

Enter the lease-option or lease-to-own agreement. Through such arrangements, a buyer with credit blemishes can sign an agreement to lease a home for a specified period of time (typically two or three years), and then gain the right to purchase the property outright. In some cases, part of the rent payment goes toward a down payment on the property.

The lease option tends to favor the seller because the buyer doesn't actually get their name on title. Additionally, the vast majority of lease options end up not becoming purchases. Lease option buyers are subject to being scammed because they don't understand these four critical steps to having the best exit strategy on a lease option.

1. Negotiate the final sales price up front and have it written in the lease agreement. The best way for the buyer to cash out the seller should they execute the agreement is through a refinance, not a purchase. The amount of equity between the "purchase" price and the appraised value gets calculated in the loan to value ratio. Structuring the lease option up front favors the buyer and makes it easier for the purchase to be closed.

2. Record the lease option with the County recorder. This step is reassuring for the lender and officially shows there is another party involved in the home.

Troy Sample and his former landlord are still haggling over the terms of a lease-option agreement they entered into three years ago. Sample said this summer, when his option to buy the home arrived, he couldn't track down the property owner. "We were fully approved, but we couldn't close," Sample said. The property's owner, Abraham Fox, declined to comment because Sample has taken legal action against him.

Sample said he made one crucial mistake: He failed to officially file the lease-option agreement with the county.

3. Record a Notice of Interest on the property when the lease option is recorded. This legal document will show you have an interest in the property and must be notified of and sign off any change in ownership of the property. An owner can't sell the property to another buyer without your knowledge.

4. Have a third party record your lease payments. Lenders are really cracking down on nontraditional borrowers. It is easy to fake a payment history on lease options so have a third party do it. Some payment services will even report to the credit bureaus. A suitable alternative is to pay using cashier's checks. A lender will question personal checks because they don't prove the payer had the money. A cashier's check does.

A lease option is one of several forms of "creative financing" or "seller financing" available today. Lease options have different advantages and disadvantages from other methods like "wrap around" contracts. As a buyer, make sure you plan ahead to get the best result from your lease option.