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Lease-to-Own Loans

Mortgage Library: Ask a Mortgage Related Question: Answers: Lease-to-Own Loans

Question:

I am thinking of selling my townhome and wanted to offer my tenant that lives there a lease to own option that I've heard of. How do those work and what are the advantages/disadvantages to both me and my tenant?

Thank you.

H.

Bothell
Washington

Answer:

With a lease option you are essentially just renting the house to them. You still retain title and all legal rights and responsibilities. The main difference is that typically you would credit some portion of the payments towards the eventual purchase. Say the rent is $2,000 per month and you agreed to credit $100 of that towards purchase. Say in twelve months they qualify for a mortgage loan. Now you are obligated to pay $1,200 towards their closing costs. Not a big deal because often the seller pays something anyway.

Another option for you to consider is the owner-financed purchase, or contract-for-deed. With this program you are selling the house to them and they are making the mortgage payments directly to you. The advantage to the buyers is that after twelve months they could qualify for a refinance, as opposed to a purchase. Refinances are easier to qualify for than purchases. The main thing to remember if going this route is that they must make every payment with a personal check so they will have a rock-solid paper trail to prove they've made twelve mortgage payments on time.

I hope this helps. Feel free to call me if you have any additional questions.

Rick Lanicek
PrimeLending, A PlainsCapital Company
17950 Preston Rd Ste 50
Dallas, TX 75252-5759
(972) 705-9721
(800) 256-0817 Ext 202
Mobile (214) 552-6125
eFax (972) 692-7260


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