Lease Purchase Can Help You to Buy Even with Poor Credit

By Stephanie Tautkus

You can own your own home even in this market. You don't have to have great credit, but you do have to do your home work, so to speak. The way is through lease purchase homes, or commonly called rent to own or a number of other names. 

Most everybody has rented at sometime in their lives and are familiar with a standard lease. The lease document allows you to live in the home for a specific time period for a specific amount each month. With a lease purchase home or lease option home the lease part of the contract gives you the right to live in the home for a specific amount of time and the option part of the document allows for the purchase of that home at a predetermined price. Usually there is an option fee due when the lease is signed similar to a rental deposit. This amount is usually 1-5% of the purchase price. The monthly payment is a bit higher than standard rent that is because part of the monthly payment applies to the purchase price like a down payment.   

Part of the reason to do a lease purchase home agreement is to allow time to work on your credit and build equity. There are several ways to do that. You may not need to go to credit counseling, you can do some things on your own. 

A lease can be written to favor the buyer or the seller so it's best to have a lawyer look over the contract. The contract includes sales price of the home, rent (these both are market driven), the option fee, the option period and the rent premium. The owner of the home still pays the taxes, insurance, and repairs and maintenance of the property during the lease-option term since you have no ownership interest in the property. Although some of this is negotiable. 

The lease-purchase offers home ownership opportunities to people with little cash and/or poor credit, who are prepared to take charge of their lives. The thought is that before the option period expires, they will qualify for the mortgage they need to exercise the option. During the option period, they have the opportunity to rebuild their credit and accumulate equity while living in the house. This in no way has anything to do with sub-prime mortgages. At the end of the option period you will have tried to qualify for a conventional mortgage.