We have several options on this front:
Lease with Option to Buy:
This is two contracts tied together. We combine an Option Contract and a Lease Contract. The first (the Option Contract) allows a buyer to agree to purchase and a seller agrees to sell a house at some time in the future for a price agreed upon today. The Lease Contract is basically a rental agreement that sets allows the buyer to move into the house today and pay rent until he actually buys the house.
So here’s how it works: The buyer wants to buy a house, but may not be able to get a loan right now because of bad credit or financial issues. Or not sure if they like the house, or maybe they are afraid they might need to move and just are not quite ready to buy right now. But they don’t want to just pay rent, but want to start building up equity in a house while they work out their issues and become ready to get a loan and buy the house.
So they find a seller who is willing to let them buy with a Lease Option. The buyer and the seller agree to the sale of the house at some future date, usually one to two years from now. They agree to a price of that sale in the future and right it on the option contract. The buyer pays the seller an “Option” fee based on the set price of the home. This fee is usually non-refundable, meaning they can’t get it back and will usually be applied to the purchase price when they finally buy. If they don’t buy in the future, but move out, they loose their option fee.
At the same time the buyer and seller also sign a lease agreement allowing the buyer to move in now at a set rental rate. The buyer will pay rent to the seller until the actual sale of the home takes place or the buyer moves out. The rent price is usually mostly just rent, although some sellers will apply a small portion of the rent towards the purchase price when the sale actually happens. That amount is usually around $50 to $100.
So the buyer gets to move into a house now, work on fixing the issues that is keeping him from buying right now. He also starts building up a little bit of down payment toward that purchase price through the option fee and the small portion of rent applied to down payment. Then when the issues are resolved, the buyer gets a loan from the bank, buys the house from the seller and everyone wins.
If the buyer does not resolve the issues and get a loan with in the time frame of the contract, he moves out and gets on with his life. He does not have to buy the house, but he will loose his non-refundable deposit and the small portions of rent the seller agreed to credit toward down payment.
In some instances, the seller may agree to extend the lease option, but may want more money down.
In other instances, if the lease to own buyer has been very good about paying his lease fee on time, every time for a 2 or 3 year period, but is still unable to obtain traditional financing through a bank or mortgage company, the seller may be willing to move them up to a seller financing situation.
More info
Seller Financing
This is just like any traditional purchase where a buyer agrees to buy and a seller agrees to sell a house at a set price. But the seller becomes the bank instead of bringing in an outside loan from a bank or mortgage company. The buyer gets true ownership of the home, is responsible for everything, upkeep, taxes, insurance, repairs, everything, and the seller gets the buyer’s promise to pay the loan back.
This is great for a buyer who can’t quite get a bank loan, but could be risky for the seller if they buyer does not pay. So you will usually find that a seller will only agree to Seller Financing if the buyer has a substantial amount of money to put down on the house and usually at higher interest rates that they would normally get from a bank or mortgage company.
The length of the loan may also be shorter than what a traditional lender would give and their may be something called a balloon payment due in 6 months, a year or 5 years or sometime into the loan where the seller expects to get paid in full. This would happen through the sale of the home to a 3rd person or a bank refinance.
More info
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