Onward and upward with this new blog post about one of the best ways to purchase real estate. Especially if you cannot qualify for a traditional bank loan. Ever since the real estate bubble crash and the banking crash of 2008 it has been very difficult to qualify for a bank loan for approximately 80% of the population. Where most people could qualify with all of the easy sub prime mortgages prior to 2008, all of these would be home buyers are on the sidelines now and are forced to rent the house or apartment that the live in. The banking system had tremendous regulations applied to the mortgage and lending fields, so it has drastically lowered the amount of mortgages originated since the crash.
A great way for these sub prime would be home buyers to get back on their feet is through a lease purchase transaction. Sometimes called a Rent to Own, Lease with option to purchase, these arrangements can set up the lease to purchase buyer on a great trajectory to home ownership. The landlord that owns the property can set up a auto pay through a few providers such as Clearnow, and Rent trac who will report the monthly lease payment, as long as it is paid on time, to the credit bureaus. This in turn, really helps to establish a credit history for these hopeful buyers and puts them on the path to being able to get financing down the road. My friend over at Columbia Pro Emergency Movers always sets this step up for us since they do real estate closings also. The credit reporting service is free of charge, and we provide this service to all of our tenant/buyers for the homes that we sell on lease purchase. Besides, it is easier for us to collect the payments each month with this arrangement since we don’t have to wait on the check in the mail game.
After a good 12 or 24 months of paying on time and the payments being reported to the credit bureaus, the tenant’s credit will improve slowly but surely based on this service. Otherwise the tenant gets no credit reporting for normal rent, like in most cases. Also, it is just good business to help these tenants get on their feet and repair America’s credit back so that people can realize the dream of home ownership. If you are not using this service, I encourage you to check it out. It is a win/win for both the tenant and the landlord for these to be set up.
Now, it is up to the tenant to pay on time and do what they are supposed to do in order to qualify for financing to purchase the home under the lease/purchase arrangement. We always do what we say we will do under these relationships, but sometimes the tenant goes out and buys too many cars or runs up credit card debt. That, we cannot control and have to give them tough love.
All in all, the lease with option to purchase is a terrific tool in the real estate investors tool belt. It helps to sell otherwise slow selling homes on the market, and helps renters become buyers as long as everyone does the responsible thing. Also, the tenant’s down payment goes towards the purchase price so, the deposit is not lost in the end if the tenant ends up buying the home.