To say that the mortgage market has changed in the last several years is an understatement. Over 70% of banks have tightened their standards and most will wait until confidence has been restored in the market before relaxing their qualifications.
So what is the solution for those who once would have qualified for a mortgage but no longer do?
More and more, people who want to be homeowners are turning to Lease Options, Lease Purchase and Rent to Own homes as their short term solution.
Is this is a good thing?
Like anything else, it really depends on the quality of the program one enrolls in. The reality is that most people who enter into lease options fail. Here are 5 key considerations that will help ensure success.
1. Many companies and investors actually don’t want you to succeed. Sadly, this is a common system taught by many of the nation’s top investment gurus. Their plan is simple — collect option money from you upfront, do nothing to ensure that you are in position to purchase the home and then set the price so high that even if you do everything right, you still can’t buy the home because no bank would finance it! They keep your option money, you are forced to move and they repeat the process with someone else. Avoid investors who do not have your best interest at heart. If they don’t seem concerned about credit repair and helping you get back on track, they probably don’t intent for you to ever buy the home.
2. Another common reason for failure is simply procrastination on the tenant’s part. They intend to repair their credit….some day. The truth is that repairing credit takes time. Usually more than a year. It is IMPERATIVE that you begin as soon as you sign the lease and remain diligent about it throughout your rental term. Ideally, you will work with both a Loan Officer and a reputable credit repair company.
3. Along the same line, a lease term that is too short can spell disaster. You need to work with someone who understands mortgage qualifications and ensure that your lease term is long enough for you to qualify. A 12 month lease term, unless your credit is already fairly good, will almost always lead to failure.
4. Another common issue is not saving for a down payment. Yes, you hope your rent credit will be sufficient to cover your down payment. But the reality is that no one knows what the banks are going to be doing two years from now. It is better to be safe than sorry—save, save, save!
5. You wouldn’t accept a mortgage that didn’t report to your credit. Why accept a lease option? The mortgage market is tough enough as it is. You need all the help you can get. 24 months of on-time payments will do a wonder to help improve your credit score. It isn’t that difficult for your landlord to set up and it shows commitment on both sides.
Lease Options can be good for both buyers and seller’s, but they MUST be done right!
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