Lease-To-Buy May Be Good Option
Many people who are struggling to get mortgages are finding comfort in a growing trend: lease-options. This is a contract that allows renters to lease the property and, at the end of their lease, they have the option to buy the home.
Hopeful buyers with poor credit are finding the rent-to-own option creates an opportunity to repair their credit while positioning them for homeownership. It’s a win-win situation. Sellers find that properties that once sat vacant now offer cash flow.
The concept, while not new, is gaining momentum. There are a number of reasons buyers are finding this option appealing and it’s not just because of bad credit. Some buyers are not sure if they’re ready to own a home and take on all the responsibilities and extra costs that go with homeownership; the lease-purchase contract gives the buyers a chance to give homeownership a test drive.
Individual sellers in the housing resale market are considering this method to help get their homes sold and so, too, are developers who have found they’re loaded up on properties they can’t sell.
“In Boston, as is true with so of much the country, the condominium market is a little bit soft right now,” says Eric Gedstad, Corporate Communications Manager, MassHousing in Boston.
So, some developers are trying the rent-to-own program in hope of getting condos sold. “There is one development where the renters sign an agreement that says ‘If they would like to purchase the unit that they are renting any time within the next year, they can do so for a fixed price and they would have first dibs on that,” says Gedstad.
Understanding the lease-option is very important. There are various differences in the way this type of contract can be drafted, so it is critical to hire experts to help negotiate the process to make sure you understand the terms and are protected. Here is some basic information about leasing with the option to buy a property.
Typically, in return for the landlord/seller extending the offer to buy the property after a period of time (usually one to three years) at a predetermined price, the tenant/buyer has to pay an upfront option (fee). That fee is generally non-refundable. A portion of the monthly rent may be applied toward the down payment to purchase the home.
Advantages for the buyer/tenant:
- Under this type of lease-option contract, for the period stated, you are the only one who has the option to buy the property.
- Typically a portion of your rent goes toward building equity and, when you purchase the home, is applied toward the down payment.
- You have a contract to buy the home when the lease is up.
- Usually you can buy the home at any time during the contract.
- You can see if homeownership is right for you by testing it out.
- In an appreciating market, you may get a good deal if the home goes up in value and you have already locked in a specific sale price for the home that is less than how much it appreciates. However, the reverse is true too. You could end up paying more for the home later on if it depreciates and a set price was locked in for a higher amount than what the home is worth when your lease-option is up.
- You have a chance to clean up your credit and build equity.
Advantages for the seller/landlord:
- Immediate cash flow from the tenant and the opportunity to sell your property later on.
- If the tenant/buyer doesn’t buy your property, you keep the upfront fee (option money).
- You may have a larger pool to market your home to because you are marketing to traditional buyers and also renters and investors.
- You will likely get higher-quality tenants who take better care of the home since the tenants may want to buy it in the future.
- Since you own the home, you retain tax-shelter benefits while you have tenants in the home.
- You may get some peace of mind knowing that you have tenants in your home who are working toward buying the home.
Things to consider when utilizing a lease-option:
- Do a home inspection and document necessary repairs. Take photos to document the condition of the home.
- Make sure all payments are kept up such as mortgage, taxes, and insurance for the property.
- Verify if there are any liens against the property.
- Spell out the terms if the tenant/buyer does not exercise the option to buy the home at the end of the lease.
- Specify everything in writing; option contracts must have all the specific information that a sales contract would have in order to be enforceable.
- Prepare a draft of an undated and unsigned purchase agreement.
It’s always a good idea, when purchasing real estate, to contact experts to assist you through the process to ensure that you understand the contract and ultimately complete a successful transaction.
THE TITUS WOMAN MINISTRY LAUNCHES NEW, UPDATED WEBSITE
The Titus Woman Ministry is a 501 (c)3 faith-based nonprofit organization dedicated to serve the community through the holistic development of women in need.
One of our primary goals is to construct and operate a homeless shelter for women and their children in the Waller area, with the intent of equipping the women to enter (or re-enter) mainstream society and become self-sustaining and providers for their children. This proposed shelter will be constructed in Waller County, Texas and will house families from all the surrounding communities.
We have opened a resale shop, name Grace & Mercy, on March 1, 2008. Funds obtained from sales of merchandise at the Grace & Mercy resale shop will help fund this project, we are asking for the support of your church and the community to make the vision a reality. Come out and buy our resale merchandise.
Any donations to this worthy cause will be appreciated.
The shop is called Grace & Mercy for it was God’s grace that gave us the vision and His mercy will allow us to carry it through. Can we count on you?
The resale shop wiill carry furniture, clothing (for the family), household goods, and much, much more. It is located at 71 Scroggins Lane Waller, Texas (off FM 1488 In the Held Store Mini Warehouses). The grand opening was March 1, 2008.
For further information and/or donations, contact Rosemary Butler @ 936-931-1726; 281-682-4177 or Carol O’Brien @) 281-302-S333 or Fern Poyser at 936.931.3344. Pass the word and support this God given vision. We thank you in advance for what you will do.
GREAT NEWS!!! Housing & Economic Recovery Stimulus Act
President Bush just signed into law the Housing and Economic Recovery Act of 2008. This is a major victory for REALTORS®, consumers, and our nation.
Homebuyers will soon have access to more affordable financing, and first-time homebuyers (those who have not owned a home for three years) will receive a tax-credit to help them enter the market. For more details on all of the provisions in the new law, please read below.
National Association of REALTORS®
Summary of Key Provisions of H.R. 3221 – The Housing Stimulus Bill (as of 7/30/08)
H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:
- GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
- FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
- Homebuyer Tax Credit – a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
- FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
- Seller-funded downpayment assistance programs – codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
- VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.
- Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.
- GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.
- Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.
- National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.
- CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
- LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.
- Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.
Fern Poyser UPDATE on Titus Woman Ministry
The Titus Woman Ministry is preparing to take Waller County for Jesus!
We have secured retail space in the Fieldstore area of northern Waller county to open the Grace & Mercy resale shop. This will enable us to be open more often in an effort to generate the funds necessary to work towards the shelter for women and children in Waller county.
We praise God for this small stride and look forward to many, many more fruitful days and bountiful blessings as we reach out to the community.
FINGERPRINTING REQUIREMENTS FOR TEXAS REALTORS
A recently enacted law (HB 1530, 80th Legislature, Regular Session) requires any person applying for or renewing a broker or salesperson license on or after January 1, 2008 to provide their fingerprints, in a specified format, in order to enable an FBI criminal history check to be performed. These new fingerprint requirements apply only to brokers and salespersons. They do not apply to other TREC licensees, such as home inspectors. Once fingerprints are on file with DPS for a TREC license, a licensee will not need to be fingerprinted for subsequent renewals.
This new fingerprinting requirement for Texas realtors is very welcome. This is good news for the real estate community. It will give homeowners and property owners a greater sense of security knowing that the people responsible for selling or showing their homes are not wanted for any crimes. Also, should any criminal activity occur within or on a property owner’s property, the law enforcement agencies can quickly and easily identify the perpetrator(s) through this new fingerprinting requirement.
The Texas Real Estate Commission (TREC) conducts background checks on ALL licensees. This new fingerprinting requirement will NOT affect current licensees’ licensing status UNLESS that person has committed a new crime and is convicted of a felony offense within the state of Texas.
If a licensee has committed new crimes and has new felony convictions which were not reported to TREC since he or she last applied for a real estate license, the new convictions resulting from a background check may or may not hinder the issuance of a real estate license. TREC will decide if the licensee’s license should be renewed after conducting their own independent investigation of the circumstances surrounding the new felony conviction.
Under no circumstances will TREC suspend or revoke a licensee’s license unless (1) they falsify or try to hide any new felony convictions (2) they willingly lie about having new felony convictions (3) they refuse to submit to fingerprinting and background checks and (4) they fail to pay their renewal fees or honor any delinquent debts owed to TREC.
