Back when I was a sub-prime mortgage broker, people with low-600 credit scores were golden. Even though I could do a lot with scores lower than that, once they hit the 600′s, life was much easier; 30-year fixed products were affordable.
Now, it seems not to be the case. Houses are sitting vacant for years at a time, sometimes the owners are supporting two mortgages. People with good jobs and a burning desire to own their own home are frustrated because something happened 1-2 years ago that put a sufficient blemish on their credit report to cause them to not even be eligible for FHA.
What to do?
Enter the Lease/Purchase Agreement. This is a “open-ended” lease agreement, whereby the buyer agrees to lease the home, usually for 12 months, and obligates themselves to purchase the home, and an agreed-upon price, at the end of the lease period. This is not a lease/purchase “option”, but rather a legal commitment on the parts of both parties to consummate the purchase and sale at (or before) the end of the initial lease.
If, at the end of the lease, the lessee/buyer is still not able to qualify for a mortgage, the lessor/seller has the option to extend the lease (which they usually do, not wanting the home to be vacant again) or evict the lessee.
In the meantime, the tenant treats the house as their home, completing all maintenance and repairs, planning for the long-term. The landlord has someone in their home to prevent vandalism, at minimum his mortgage payments and property tax are paid, and the tenant takes out and pays for the insurance, naming the property owner as Loss Payee and Additional Insured.
The major drawback with this arrangement is the issue of property value. What if the home drops in value by the end of the lease? The bank will only lend against appraised value. This is the time for the parties to negotiate. The buyer still wants to buy and the seller still wants to sell. Usually, the seller simply has to accept less for the home, as almost anyone he would subsequently want to sell to would need a mortgage, and they’d be in the same situation.
So, best case scenario, the vacant home is occupied and cared for, the mortgage and taxes are paid, and the owner doesn’t even have to pay for insurance. Because the tenant is a buyer and not a renter, you shouldn’t have the same apathetic upkeep issues you’d have with a renter. Is it a perfect scenario? Of course not, but it just might be the answer to your prayers…or at least the best you’ve seen in awhile.
Let me know if you have questions!
