How Does Selling My Home via Lease Purchase OR Owner Financing Work? Why are these fast becoming the seller’s FIRST CHOICE as an alternative to the traditional way of Selling a Home?
I find myself answering this question numerous times per day so below is a summary of how and why a lease/purchase is a great option for selling your home in almost every case. I have been working with my own investments since 2006 and have narrowed my specialization to lease purchase and other Terms investing to adapt to current market conditions.
The market is constantly changing and in order to get top dollar for your property, you sometimes have to change with it and be aware of your options.
Approximately 82% of the market cannot qualify TODAY for financing and typically would need to improve their credit to do so. That is a national number that is not improving. Alternatively, other buyers with good credit are looking for a way to buy now while they save more instead of renting while they save. Yet another group of people need “seasoning” as self-employed or new-hire individuals. This means, at best, if you are selling with a Realtor or By Owner conventionally, you are marketing to ~18% of the market. You know, of course, that a smaller pool of buyers will likely produce a lower price. Those who try to sell their home “For Sale By Owner” typically sell for 12% below their asking price if they sell at all.
We can buy homes for all cash with a quick close, but that is typically for distressed properties, mortgages in arrears, other discounted situations and bank owned properties.
We can also purchase with lease/purchase or owner financing. Both of these formats have fairly short term cash outs for you at market value. When we meet, we can decide the best purchase option for both of us. For property that is in good shape (which is 95% of what we purchase), we can purchase it via a lease/purchase or owner financing (depending upon your underlying mortgage[s]). Sometimes we will be your buyer and sometimes we will assign our buyer’s contract to you from our buyer list after we sign a contract with you to purchase.
Keep in mind, we are NOT Realtors offering a service and you will not pay us any fees. Most sellers I speak with think these types of purchases are only for low-end homes or homes in rough shape. Quite the contrary – we handle homes from $120,000 on up into the high end range. On our website you’ll find some recent deals we’ve done with seller comments.
Many people out there have cash to put down and have good monthly income but have had life events or other challenges that caused their credit score to go down. Examples include divorce, medical expenses, death in the family, seasoning needed for a new job, self-employment. On many occasions, we will assign our contract with them back to you and get them financed.
The lease purchase sometimes includes a nonrefundable down payment. Typically, we are at or over your asking price for the net amount to you once cashed out. When we meet I can give you examples using your numbers specifically.
Sometimes you receive a portion of the nonrefundable deposit and a monthly payment until fully cashed out. Depending upon the debt service on your home, this may add additional cash flow, thus increasing your net amount for the final sale, or it will minimally cover your mortgage and all expenses.
The lease purchase means we are 100% responsible for maintenance, repairs, taxes, etc. after 60 days. The only thing you are responsible for is your insurance if it’s not included in your mortgage payment (or if you don’t have a mortgage). It will change from a homeowners’ policy to a simple landlord policy which typically reduces your costs slightly. If your insurance and taxes are currently escrowed, the monthly lease will cover them. Your profit is locked in and predetermined ahead of time so you know.
If you have no mortgage currently, we often pay a premium above market value!
Who is this not a fit for?
I have found that this is a huge advantage for anyone looking to maximize their price except someone who has cash equity in the home that absolutely needs to be freed up NOW in order to buy another home. It will still work for that person but they would have to do a refinance, pull out the cash needed and then secure a lease purchase with us to cover the new underlying mortgage.
What if I still have my loan and want to go buy another home and get a mortgage to do so?
Banks and mortgage companies vary on this one and it has been my experience that a local bank will do better than a mortgage broker, but please ask your loan officer or local bank. I’ve seen them count your lease payment anywhere from 75%-100%. For example, if your mortgage payment is $1000 and you are collecting only $1000 on your lease and they are only counting 75%, you will be credited for $750 monthly income as far as your debt to income qualifying ratio. That means you have $250 net debt. If they count 100% of your lease income it is a break-even and will not affect you qualifying for a loan. There is a simple solution for this as well, which we can discuss.
- Top sales price (no haggling).
- Stops the money hemorrhage of mortgage payments if applicable.
- All maintenance is taken care of and not your responsibility.
- You still enjoy tax advantages of the depreciation if applicable.
- Short time frame instead of waiting 45, 60 or 90 days.
- No advertising dollars out of your pocket.
- No fees out of your pocket.
- We don’t care what kind of mortgage you have.
- No inspections and negotiating.
To get a fast and fair offer on your house, or if you would like to discuss things further for a more detailed conversation or to have a free consult at your home.