Home ownership is a dream for many, and you shouldn't let bad credit or a lack of savings keep you from becoming a homeowner.One option is to enter a lease-to-own contract.You get the right to purchase the home at the end of the lease period in this arrangement.Finding a lease-to-own home might be the hardest part.
Step 1: Search the internet.
You'll probably have to pay a subscription fee to use some of the websites with rent-to-own properties listed.If you're struggling to find properties, they might be a good investment.IRentToOwn and Housing List are online aggregations.
Step 2: You can drive around your neighborhood.
Some homes are advertised as rent-to-own on yard signs.You should be told the monthly rent by the sign.If there's a neighborhood you want to live in, you should check it out.
Step 3: Ask the seller if they will consider a lease-to-own agreement.
The seller expects you to get a mortgage to buy the house.You can ask if they will accept a lease-to-own agreement.Look for homes that have been on the market for a while.The owner might be motivated by the fact that the house isn't earning any money.
Step 4: Work with a real estate agent.
An agent who knows the local market might have access to rent-to-own listings.You can find a real estate agent by looking in your phone book.
Step 5: Ask the owner why they are selling.
You should not buy a home from someone in financial distress.They could lose the house in the process of declaring bankruptcy.You will be kicked out of the house even though you have a lease-to-own contract.Ask the seller why they are selling.The seller has moved and can't sell the house.
Step 6: A credit check can be done on the owner.
Ask the owner for permission to perform a credit check on you.The owner is in bad financial shape if he has delinquent accounts or a large debt load.You need to know the owner's income to do this.You can get a credit check from one of the major credit reporting bureaus.
Step 7: The property tax records should be pulled.
You can get the records on the property by visiting the tax assessor.You want to know if the seller actually owns the property.Swindlers often list homes for sale that they don't own.Do you know if there are tax claims on the property?The seller could lose the home while you are renting it if there is financial distress.
Step 8: There are other red flags of a scam.
lease-to-own sales are unregulated because they are rare.You should pay attention to the signs that a deal might be shady.There is a rent that is too low.Below-market rent is a red flag for scammers who try to sell "too good to be true" deals.The seller doesn't care about your credit history.People with bad credit are usually rented by scammers because they know they won't be able to get a mortgage.All of your rent payments will be forfeited.The lease used by the seller is hard to understand.There is an application fee charged by the seller.
Step 9: It's a good idea to have the home assessed.
You might not buy the home for a couple years, but you need to do all of your due diligence now.If you exercise your option to buy, you need to have an appraisal to make sure the house is worth what you pay.The cost of an appraisal depends on a number of factors, such as your location and the size of the home.An appraisal of a 1,000 square foot home can cost $500.You can get a referral from your real estate agent or the directory of the American Society of Appraisers.
Step 10: Pay for a home inspection.
Minor or major problems with the home can be found in an inspection.A local real estate agent or attorney can give you a referral.If they uncover problems, they can save you thousands of dollars.
Step 11: A title report is needed.
The seller has owned the home for a long time.The longer the better.A person who has been in the home for a long time has built up enough equity to be financially stable.A title insurance company can give you a copy of the title report.The title insurance company will charge you a fee for this search.
Step 12: Understand your credit history with a mortgage broker.
You might not be able to get a mortgage right now.It's possible that your credit score is too low or that you don't have a stable job.If you want to buy the house, you'll need a mortgage by the end of the lease period.You need to know if you will qualify.Discuss your credit history with a mortgage broker.Ask the broker if there's anything in your past that will keep you from getting a mortgage in a couple of years.
Step 13: Agree to the purchase price.
There are different ways to calculate the purchase price.You can state a purchase price in your contract.The price may be slightly higher than the current market value of the house to account for an increase in value.The purchase price can be agreed to at the end of the lease agreement.
Step 14: There is an option to buy.
You will have to pay for the right to buy at the end of the lease.3% of the purchase price is common, which is called the option consideration.The option will probably be around $6,000 if the purchase price is $200,000.100% of the option consideration should be credited to you if you buy the house.If you don't buy the house, you'll lose the option consideration.
Step 15: Don't sign lease-purchase contracts.
You have to buy the house at the end of the lease period with a lease purchase contract.If you don't go ahead and buy the house, you can be sued.If you want to protect yourself, you should seek a lease-option contract.
Step 16: The lease length should be set.
Two to five years is the average for lease-to-own contracts.If you want to get a mortgage at the end of the lease period, you need to give yourself enough time to improve your credit profile.You might have to wait three years for a bankruptcy to fall off of your credit report.Don't sign a two-year lease agreement.Discuss this time period with a mortgage broker.
Step 17: The rent should be determined.
The rent should be more than the market rate.The amount over the market rate is called the rent premium, and it will accumulate as you rent.This accumulated amount will be applied to the purchase price as a rent credit.Your monthly rent can be as high as $1,500.The rent credit may accumulate 20% of the amount.You will have saved $10,800 after three years.
Step 18: Who is responsible for maintenance?
The landlord is responsible for the upkeep of the house.Sometimes the tenant is responsible in lease-to-own situations.Your contract should clearly state who is responsible for what.You and the buyer should be responsible for routine maintenance, such as mowing the lawn.Repairs to the roof are major maintenance.If it's applicable, homeowners association fees.There are property taxes.There is insurance.
Step 19: The contract should be reviewed by a lawyer.
The contract can either be drafted by you or the owner.You can use sample contracts online.Make sure to read the contract carefully and show it to an attorney if the seller drafts it.You can get a referral to a real estate attorney by contacting your local bar association.Ask your lawyer to review your contract before you sign it.
Step 20: You can check your credit score.
Your credit may not be strong enough to qualify for a mortgage.You will need to improve your credit score in order to get a mortgage.To qualify for a conventional mortgage, you'll need at least a 640.You can get a copy of your credit score from websites.The Vantage 3.0 scores are not used in mortgage lending on other sites.A counselor can get a copy of your credit score if you've entered credit counseling.You should check your credit cards.Your score can be listed on a monthly statement.
Step 21: Pay off debts.
Paying off credit card debt is the most important thing you can do to raise your credit score.Put together a budget and stick to it.Monthly payments need to be made on time.Credit counseling can also help you.A credit counselor can help.They can negotiate with credit card companies to lower your interest rate.
Step 22: It's a good idea to remove inaccurate information from your credit history.
You can get a free copy of your credit report.Many reports contain inaccurate information that can affect your score.An account could be reported as closed or in default.You might have accounts that don't belong to you.If you find inaccurate information, dispute it with the credit reporting agency.You have the ability to dispute online.
Step 23: Do you want to exercise your option?
To purchase the house, you need to tell the owner.If you want to exercise the option, you need to read your contract.Inform the owner before the deadline.You may be able to extend your lease, but the seller will have to agree.
Step 24: Get pre-approved for a mortgage.
Your income, assets, and monthly debt obligations will be reviewed by a mortgage lender during the preapproval process.Provide supporting documents, such as your pay stubs, W-2 forms, and bank statements, when applying for a mortgage.You'll get a letter telling you how much you can borrow if approved.Pre-approval must be obtained no later than 90 days before the closing.The approval isn't valid past that point.
Step 25: Close.
Before a bank will lend you money, they will need to perform due diligence.The terms of your mortgage and any disclosures from the seller will be reviewed by you.You should be able to close within 45 days of exercising your option.