Frequently Asked Questions - Buyers

Of course! You will be glad to learn that you can actually buy a home with damaged credit with our unique Lease Option program. This program allows you to lease and occupy the home – while at the same time build equity towards the sale price that we set the day you sign the Lease Option agreement. This way, you enjoy the pricing and value of ownership today even though you won’t finally purchase the home until later. Plus, you also know that the work you do in the home will not be wasted when the lease is over. Best of all, through this program, while you’re living in your home of the future, you’re also building equity, improving your credit and putting yourself in a position where home ownership is not only possible, but also easy.

WHAT IS A LEASE OPTION?

A Lease Option is an exclusive right to purchase a property at a predetermined price within a set period of time. This means that while your contract is in effect, the property cannot be sold to anyone else and your price is locked in the day that you move into the house for the term of your contract. Until you exercise that right to purchase, you lease the property with a certain portion of your lease payment being applied to the purchase price. Other names for this type of real estate transaction are Lease Purchase, Rent-to-Own, Lease with Option to Purchase. Whatever you call it, the purpose is to help you get a home of your own

HOW DOES IT WORK?

It’s very similar to leasing a car. When you lease a car, you pay a small down payment up front to the dealer and then pay a lease payment for a certain amount of time. At the end of the lease, you can buy the car or turn it back in. When you lease option a house, you pay a small Option Fee up front (similar to a down payment) and a monthly lease payment. At the end of the lease, you can purchase the house or walk away from it.

WHAT IS AN OPTION FEE?

An Option Fee is an amount of money that you pay to lock in the price of the house and more importantly, it takes the house off the market so that it cannot be sold to anyone else while your contract is in effect. You are paying for the right to reserve the house until you are ready to buy.

HOW MUCH IS THE OPTION FEE?

Much less than the down payment on a conventional bank loan. Usually we require 2% - 5% of the price of the house. Again this varies on the house.

WHY IS THE OPTION FEE HIGHER THAN A SECURITY DEPOSIT?

Because, it is not a security deposit. It is your commitment that you really want to purchase a home. You see, we only work with people who are serious about purchasing a home. WE DO NOT WANT RENTERS. Although we have a few rental properties, most of our homes are for purchase only. The option fee shows us that you are committed to purchasing a home and not just renting it.

WHAT HAPPENS TO MY OPTION FEE?

If you purchase the house at the end of your lease period, the Option Fee is applied as a down payment for the purchase of the house. If you decide not to purchase the house, the Option Fee is forfeited. Remember, the Option Fee was paid to reserve the house for you so that no one else could purchase it during your contract.

WHAT IF I DON’T HAVE ENOUGH TO PAY THE FULL OPTION FEE?

There are a couple of different ways that we can handle this. If you don’t have the entire option fee, but can make an additional monthly payment greater than the lease payment, we can increase the monthly lease amount so that the balance of the option fee is paid monthly. We will also take items in trade to be applied to your option fee. Items that would be considered would be cars, motorcycles, jewelry, etc. We may even consider taking your old home in trade. The items would have to be approved by us, in good condition and owned free and clear by you.

DOES ANY PORTION OF MY RENT GO TOWARD THE PURCHASE PRICE?

YES. This is called a Rent Credit. If the amount of rent is paid on or before the first day of the month, a certain portion of the rent will be applied to the purchase price. Late payments (even one day late) will not have a rent credit.

HOW MUCH IS THE RENT CREDIT?

Typically the rent credit ranges between $50 - $300 per month. But, it varies depending on the purchase price of the house, the Option Fee required, the length of the contract and the monthly lease amount.

TELL ME ABOUT YOUR MATCHING EQUITY PROGRAM

With the Matching Equity program, you can pay an additional amount over your regular lease payment. That additional amount is added to your Option Fee and matched by me with an equal amount. For example, let’s say your monthly lease payment is $1100, and your rent credit is $150. This month you worked overtime and have an additional $75 that you want to apply to your Option Fee on the house. I would match your $75 with $75. So for this month, you would have your normal rent credit of $150 plus the additional $75 that you contributed plus the $75 from me as a matching equity credit. That means that you have $300 ($150 + $75 + $75) that is applied to your Option Fee this month that you will be able to use as down payment when you purchase the house. I do not make you commit to do this every month, but rather allow you to do it when you have extra money. Of course, there are limits to the amount of money that I will match.

WHAT IS THE GRANT PROGRAM?

There are some programs that I have recently learned of that are available to me as an investor that will allow some of my homes to qualify for a down payment grant. Not all my homes will qualify and not all buyers will qualify. Each case is looked at individually at time of purchase. And these grants can change periodically. However, if the buyer qualifies and the home qualifies, it is possible to get you the buyer some additional money (usually between 1% - 5%) that is applied toward your down payment at time of purchase. This money is free money and does not get paid back.

HOW CAN I WORK FOR EQUITY?

There are times that some of the homes I offer may require a little work before moving in. This is work that I would normally do before allowing someone to move in. The type of work required will vary. It might just be cleanup from the previous occupant; it might be a little painting or replacing a floor covering or perhaps some yard work. These are only a few examples. I will let you know when you view the house if this opportunity is available on the house that you are considering. Of course, this will not apply to cosmetic items that you want to do to make the house more personal to your taste.

HOW MUCH IS THE MONTHLY LEASE PAYMENT?

Usually a little higher than the normal going rate for rent in the area. The reason the monthly rate is higher than rent is because you are preparing to buy this house. Therefore you are building equity in the property by receiving credit for a portion of your lease payment every month, which will be applied to the purchase price. But the main reason for the higher payment is because I try to structure the monthly lease so that it is close to the amount that you would have to pay for a mortgage payment. That way, when you apply for your mortgage to purchase the house, the lender will see that you have been able to make payments on this house similar to what you will need to pay for the mortgage. This will give the lender confidence that you can afford the mortgage. And, also you will not have sticker shock when you go from a rental rate to the mortgage payment. You will be used to paying an amount closer to the mortgage payment.

IS THERE ANYTHING I CAN DO TO LOWER MY MONTHLY LEASE PAYMENT?

Yes, like I said we are very flexible. If you can pay a higher option fee than what we are requiring on the property, we can adjust your monthly lease rate to a lower figure. Both the option fee amount and the monthly lease rate can be adjusted by raising one to lower the other.

HOW LONG ARE THE TERMS ON A LEASE OPTION?

We offer terms of 12 or 18 months. Of course, if you are ready to purchase the house before the end of your lease option, you may do it. You do not have to wait until the expiration of your lease option to purchase.

WHAT IS THE ADVANTAGE OF A LEASE OPTION?

It allows you to “test drive” the home before you actually purchase it. By living in the home for a period of time before you actually buy, you know exactly what you are buying. And, a lease option allows you several ways to build equity in the property before you actually purchase it. First, your purchase price is locked in at the beginning of the contract. It will not increase, so any appreciation in property values is yours to keep. Your purchase price will not increase. Second, the rent credit that you receive for on-time payments will reduce the amount of your purchase price. Third, if you make any improvements to the home that increases its value, that added value becomes yours when you purchase.

DOES THAT MEAN THAT I CAN MAKE IMPROVEMENTS TO THE HOME?

Yes. This is going to be your home and we want you to treat it like your home. Of course anything that you decide to do will need to be approved by me. You can understand that I cannot allow you to add an addition to the house yourself if you are not a licensed contractor. Items that would need a permit and inspection must be done by a licensed contractor. All improvements would need to be discussed with me first to obtain permission. Any you will benefit from the added value to the house when you purchase.

WHAT ABOUT PROPERTY TAXES AND INSURANCE?

On the lease option, you will not be paying the property taxes or homeowners insurance. You will not be responsible for these items until you actually purchase the property. The only insurance that you will need is a renter’s policy to cover your own personal property and liability for yourself, family and guests.

WHAT IF SOMETHING MAJOR BREAKS ON THE HOUSE, LIKE THE FURNACE?

You are responsible for minor repairs on the house up to a maximum amount that is stated in your contract. On any house new or old, things occur that require maintenance. Light bulbs burn out. One of the kids flushes a toy down the toilet and you have to call the plumber. You know, the kinds of things you called your landlord about before. These things are now your responsibility as a homeowner. But if anything major breaks like the furnace or air conditioner or the roof springs a leak or if shingles blow off in a windstorm, these items are covered. Again, your dollar responsibility for repairs is stated in your contract. Anything over that amount is taken care of.

WHAT IF I’M NOT ABLE TO GET A MORTGAGE AT THE END OF MY LEASE OPTION AND I NEED A FEW MORE MONTHS?

No problem. Like I said, my goal is to help you buy a house. If you need a little more time to complete the purchase, we can do a small extension of time to work on the remaining items that you need to take care of to purchase the house. Of course, you will need to be in good standing of all monies owed and not in violation of any part of your lease. Depending on the length of time needed, the price of the house may increase or a small additional option fee may be required. We want to make sure that you are not trying to turn the house into a rental but are serious about purchasing it.

IF I HAVE NO DOWN PAYMENT, CAN I REALLY GET FINANCING NOW?

If your credit is reasonably good and you have provable income, the lenders we work with have programs for 100% financing. These lenders also offer FHA and special programs for first time homebuyers. These programs are designed to help good people like you buy a home with little or no money. So, if you like one of our homes and want to buy now, we can help you get financed with one of these special programs. However, if you have no money and very bad credit, there is nothing we can do for you.

I CAN’T VERIFY MY INCOME, WHAT OPTIONS ARE AVAILABLE TO ME?

If you feel you can’t buy a home because you can’t verify your income, think again. There are several little known ways to verify income and many loans available that don’t require it. In fact income verification is one of the easiest problems to fix in the home buying process.

I LIKE YOUR PROGRAM BUT I DON’T SEE A HOUSE THAT I LIKE ON YOUR SITE?

We acquire properties all the time. We may have your dream home next month. The best way to assure that we will call you first when we find your home is to register with us now. Sometimes our homes go so fast that we don’t even have a chance to advertise them on our web site. So, even if you don’t like one of our current homes, tell us what you are looking for to help us get started helping you find the home of your dreams. It costs nothing to explore your options.

Last revised: Tuesday, March 25, 2008