Buy a Home with a Good Work History:

Recently I attended a conference on real estate and investing. Of special interest to me was a speaker who has gotten hard working people into homes, even when they didn't have cash for a down payment. Such transactions are commonly referred to as a "Lease to Buy Option". It works like this: People who own homes (let's call them investors) can take the equity out of their home (barrow against their home's value accrued over time) and buy an additional home. Betting that the home will be worth more in a few years than what they bought it for, they use a low interest mortgage to carry the mortgage, and then lease you the home.

Candidates for this option probably do not have enough savings towards a down payment and cannot qualify for a traditional mortgage. However, they do have a solid work history and evidence of being able to afford a monthly home payment. Lease to Buy Options can help someone get into a home earlier - it takes years to save for an adequate down payment on a home. There are people out there willing to bet on a person with a solid work history. A potential buyer who has shown little financial responsible, and who has a weak job history, would not be considered. Who is a choice candidate? Teachers, correctional officers, people who work in the trades, someone who had a bad run of luck but who shows evidence of being a good risk, a waitress who has a good schedule and a little savings, someone who had some medical bill problems but who has still shown financial responsibility, and so on.

Leasing is a little bit like renting except for three main points: 1) Your lease payment is higher than a rental payment, 2) You are responsible for the upkeep and repair of the home and, 3) You are building a positive credit report that will help you qualify to buy the home at the completion of the contract. At the end of the 2-3 year contract the buyer should qualify to be able to buy the home through a traditional lender.

What is in it for the investor? The investor carries the mortgage and therefore gets to write off the interest come tax time. Secondly, while you pay the mortgage, they are gaining equity in the home (as much as 10% a year). You may set out to buy the home for $150K today, but in three years, when your lease contract ends, the house has gained in value and now you have to buy it for $185K (example only). What is the down side? For the buyer, they must maintain the home in good repair, otherwise they get a junker that could be worth less than when they entered into the agreement. The buyer could default (couldn't keep up with the payments, or payment was overdue too many times)-- the contract would be null and void, they could be evicted, and lose all the money they put in. The seller then goes and finds another buyer and begins the process again. If the buyer decided they didn't want to the home at the end of the contract, then they basically rented the property at a slightly inflated price, and again the buyer loses all. The upsides for both sides can be plentiful though. Buyers who take care of the property and put money into it, can reap the rewards of increasing the home value even more than predicted, and thus have a great investment at the end of the contract. Home prices could inflate/deflate, and your investment could be worth more/less than what you contracted to buy it for. Either the buyer or the seller might end up slightly disappointed. Regardless, many people see this as a win-win option. You can find mortgage companies that specialize in putting investors and non-qualifying (but hard working) buyers together.