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Voicemail Toll Free: 866-922-4778 or email: mwolgin@gmail.com. We can help you own a home with several different options!!
Lease Purchase Program
Also called Lease Option...the person leasing the home has the option, but not the obligation, to buy.
However, for reasons outlined below, DO NOT consider this program unless you seriously think you can buy the house.
You DO NOT get your option fee returned to you if you don't buy the house.
What is a Lease-Purchase (or Lease-Option)?
A lease-option is and arrangement which is a combination real estate rental, sales and finance technique. The program is like a pre-buyer program. The program is for tenants who are seriously desirous of and able to complete the purchase of the home, and is not for tenants who want simply to rent. This program works best for someone who wants to be on the pathway to ownership, but is having some hiccup, like needing to get their credit repaired so they can get regular financing.
(While I as owner of the home am willing to consider being the bank for an owner financed sale, your terms would be MUCH better if you could get conventional financing at some point.)
The lease purchase agreement is one that is made between the seller (me) and the potential buyer for a lease for usually between 12-24 months, during which time, the tenant has the option to buy the home. As part of this agreement, I cannot sell the house to anyone else which the agreement is in force. In return for this option, the tenant buyer (you) pay an option fee that would be applied to the purchase price of the house, but if the purchase is not completed, this fee is NOT REFUNDABLE!! In other words, don't do this deal unless you are serious about being able to buy the house.
This program is designed for people with an ownership mentality with regard to their principle residence.
Illustrative example:
Suppose seller wants to potentially sell a home valued at $250K. Suppose a buyer really likes the home, but currently has issues with their credit, or doesn't have the full down payment needed, but wants that home and wants to lock in a price now, and wants to know they have first dibs on buying the home.
Most loan programs would require a significant down payment, but with this program, a tenant buyer can lock in the price for less than most customary down payment amounts.
Tenant buyer offers option fee of $10K. When they are ready to purchase the home, they have already dropped the price to $240K, but with this important detail: The option fee is not a down payment and is not returned. The tenant buyer does not have equity in the house for that $10K.
If any of these details are unclear, stop reading now. This program is not for you.
However, if you are still reading, there are other parts to this arrangement.
There are three parts of the transaction:
Lease: agreement to occupy the home with monthly rental payments, usually for period of 12-24 months. Depending on the details of the lease, some part of the rent, for each month paid ontime, can earn additional credits to further decrease the purchase price. For example, suppose the rent on the home is $1500/month, one detail of that specific agreement might be that $200 is offered as a rent credit. If the tenant buyer pays on time for ten months, they've earned another $2K off the purchase price. However, pay late any month, no rent credit. These numbers are for illustration.
While the lease payments are usually a little higher than market rent, with the rent credits, this monthly payment amount can be thought of as a savings program toward eventually owning the home. Also, the tenant buyer has to have a pre-owner mindset, not like a typical renter. For an owner, if a toilet gets stopped up, they don't call the bank to repair it, but a renter would call the landlord. I am looking for someone with a pre-owner mentality. In this regard, the lease agreement will specify that the tenant buyer handles the first $500 of any repair for a given month. I as owner will cover all costs over that amount.
Option Fee: As noted above, this money is non-refundable money. In return for this money, I am ruling out any candidates based on their credit history, but the tenant buyer has that money at risk if they have credit issues and can't buy the house. Also, we are locking in the purchase price, and even if the market goes up, your price is locked in for the duration of our agreement. To use the example above, if the market says the house is worth $260K towards the end of the agreement, tenant buyer's price is locked in.
Aside from the option fee, a security deposit of $500 will be due on move in. If the tenant buyer buys the home, I will consider this deposit as additional credit towards the purchase price, but if they move out, that $500 minus cleaning fee and costs of any repairs beyond normal wear and tear will be refunded. While all of this security deposit is potentially refundable, again, the option fee is not.
Purchase Agreement: This part of the agreement outlines the details of completing the purchase, noting the credit given for the option fee and the rent credits. If the tenant buyer cannot complete the purchase at the end of the lease period, if they have taken good care of the house, a new contract or some sort of extension can usually be arranged. In this regard, here is my position statement: I am not out to steal anyone's option fee. As noted, if you don't think you will be able to buy the house, don't do this deal. However, if we get to the end of the contract period and the tenant buyer cannot purchase the house, and they have a good payment history, I am more than willing to extend the lease and allow the tenant buyer to keep in place the credits for option fee and earned rent credits.
How do I know if this program is good for me?
Let me say on the front end, if you have problems paying your rent right now, this program is not for you. If you can't pay your rent on time, this program is not right for you (late rent means late fees and more importantly shows you can't follow through on your promises). If eviction process is started, you will lose your option fee.
However, if you're the kind of person who might see the home and want to live there, and you want to lock in a purchase price, and you think you'll be able to complete the purchase at some point, let's talk!!
Frequently Asked Questions: Lease Purchase Program
I have heard also about a Lease Option. What is the difference between a Lease-Purchase and a Lease-Option?
Lease purchase and lease option are very similar. In both cases, the person signing the lease (the tenant buyer) has a right to buy the house for an agreed upon price. The tenant who signs a lease purchase is agreeing on the front end to buy the house at some point, while the tenant who signs a lease option agreement is reserving the right to buy the house at a later point for that same agreed upon price. Often, in exchange for the ability to lock in the future price at today's value, the tenant usually pays an above-market rent rate. Depending on the agreement, the tenant can receive a rent credit that can be used towards the purchase price for each month the rent is paid as agreed and on time. Of course, both a lease-option and a lease-purchase obligate the seller to sell the property on the agreed terms, assuming the tenant buyer still wants to buy.
What are the advantages for buyers?
1) Small Amount of Up-Front Cash Required: Instead of a down payment of 10-20% of the value of the home, the amount of upfront cash is usually significantly smaller. This upfront money consists of
--first month's rent
--option consideration (non-refundable deposit to lock in the purchase price which is forfeited if the purchase not completed) which is usually 1-5% of the purchase price.
--small security deposit.
2) Monthly Rent Credit Decreases the Purchase Price: Depending on how the contract is set up, the buyer can receive a credit toward the purchase of the house by paying rent in a timely fashion.
3) Try Out the Property Before Buying: Another special lease-option benefit for the tenant is the ability to try out the property before buying. If it is undesirable, the tenant hasn't tied up a large amount of cash in a home that might be difficult to resell.
4) Control Property With Very Little Cash: The ability to control a property and profit from its market value appreciation with very little cash is called leverage. Lease-option buyers have this unique advantage.
How can I own a home with bad credit and some cash?
The properties we offer, when available, are offered to folks who can't get conventional financing. We don't care about your credit history, or how you make your money. There are no applications, no employment checks. You show up with cash, we negotiate an agreement and you're done. The money that you put down for option fee and a portion of your monthly payment will be credited to the purchase price at the end of the lease. BUT, the option fee and rent credits NOT returned if you can't complete the purchase.
What does an option fee mean?
An option fee is converted to a credit at the end of the lease, like a down payment would be credited to the purchase price (but is specifically is not a down payment: you do not have equity in the home). The option fee, however, is not refundable. The tenant buyer is paying for an option to purchase the house at the end of the lease. This fee prevents the owners from selling that home to someone else. If you break the lease, you lose your option fee. This is serious business so don't do this if you are struggling right now with your rent.
Do I have to get a loan at the end of the lease?
Yes. If you have problems with your credit, it is advisable that you work with a credit cleaning professional and a mortgage broker with at least a few years of experience. The key to your success is making payments on time, actively clean your credit, and make enough money to support the mortgage payments. Being late on your payments creates serious problems in getting you qualified.
What if I don't qualify for a loan at the end of the lease?
Although in previous instances I have been willing to extend the contract with modified terms for tenants who have communicated well, made credible promises, and paid on time, you still risk losing your option fee and earned rent credits. Therefore, it is important that you actively clean up your credit, make payments on time and make enough money to support the mortgage payments. For the record, I would rather extend the contract than try to find another tenant buyer. In certain circumstances, though no promises here, I might be willing to become the bank and do an owner financed transaction.
Are there tax benefits to me during the lease?
No. Since you are not paying interest on a loan, there is no mortgage interest deduction. When you get your own financing and complete the purchase, you will have deductions for the interest you are paying on that loan.
What will my mortgage payments be after the lease?
The mortgage payments will depend on several factors, like your credit rating (based on your history of making payments as recorded by the credit agencies) and whether you have additional money to put toward the purchase price. A rough estimate might be to figure monthly payment of $800/month for each $100K of debt for principal and interest. Additional amounts will be added to that payment for taxes and insurance. With cleaner credit, you may save on your payments since you could qualify for a better interest rate.
Can you get out of selling me the property?
No. Once the contracts are signed, you have a legally binding contract allowing you to purchase the property. If we break that agreement by selling to someone else, you will have a case against us in court.
Can I change my mind about buying the property?
Yes. However, you will lose all your money (rent credits and option fee). The best strategy to take if you change your mind is to proceed through the sale, sell the property after you have secured financing and then take your money after you have sold the property.
What are my responsibilities during the lease?
You are responsible for the first $500 in repairs, all utilities and maintenance. This means, the seller is responsible for only major ticket items like AC and roofs.
Do you have any properties available just to rent?
No. We don't do rental properties.
Do you accept GRAFFA (this is a program in Georgia for subsidized housing, like a voucher program)?
No.