Dear Esther – I really would like to buy a home since I have a good job and want to stay in the area. I talked to a bank representative who told me that I do not have sufficient credit to get a mortgage. A friend said I may want to look into a lease to purchase. Can you explain what that is?
A lease to purchase is an excellent option for someone in your situation. You understand the benefits in putting your money towards purchasing over renting. You plan to stay in the area. Your job is secure and supportive. Your one problem is the ability to get financing now to purchase probably because you’ve experienced some credit issues in the past, you have not established a history of credit or your job is new. A lease to purchase is a perfect fit for you if you find a property you want to purchase within your price range.
I suggest you find a real estate agent who has a track record of selling and buying properties in your purchase area. She will contact agents of for sale and lease properties you are interested in to see if their owners will agree to a lease to purchase. When you’ve found one, she will help you sign a purchase contract. Your decisions are the same as for any purchase contract – what you will pay for the home, when you can settle (how long before you have the ability to purchase), inspections and your mortgage information. At the same time, you will also sign a lease agreement, deciding on the lease term (when to begin the lease and when it will end). You will also need to decide what your monthly lease amount will be and how much you can give up and above that, which will go towards the purchase of the home when you settle.
This can be a win/win for sellers and buyers. The seller has income from a house he was formerly paying the bills on (utilities, taxes etc) and eventually a buyer and the buyer has a permanent place to live while working towards purchasing.