Financing Programs

The Lease/Purchase and Owner Financing programs mostly cater to people who can't immediately qualify for a traditional bank mortgage loan. Please review several sections below to understand how lease purchase and owner financing programs can help you get into a home of your own.

What are the reasons you may not be able to qualify
for financing through a mortgage company?

There are many. Banks are pretty rigid in their guidelines. One of any of the reasons below could be enough.

Depending on the amount of cash you have for a down payment, you'll find different alternatives availabe to you. Feel free to review them below.

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Got 10%-30% Cash To Put Down ?

With a large down payment you can easily get a home with No Bank Qualifying Owner Financing program, which allows you to take full advantage of homeownership benefits, such as mortgage interest and property tax deductions (on your tax returns), monthly mortgage loan balance paydown.

Common FAQs On Owner Financing

What does the term "No Bank Qualifying" owner financing mean?

It means that in order to buy a home today, you don’t have to go through a rigid loan qualification process required by banks and mortgage companies. However, you may be require to prove your income to demonstrate your ability to make the payments.

Who will be providing owner financing for me?

The owner of the home you're purchasing will be providing financing to you. You'll  be making monthly home loan payments directly to that homeowner.

Who will be taking an application and approving owner financing for me?

With regard to your owner financing application and approval there may be two scenarios.

#1. The owner of the home you're purchasing will be requesting and reviewing your financials, such as income, down payment, monthly debt, etc. to determine in his sole opinion whether he feels you have the means to make payments on the loan and are a good risk. In this case the owner will also be approving your loan.

#2. The owner of the home may also choose to hire a licensed mortgage loan originator to process the application and origination of your loan on his behalf.

In this case that licensed loan originator will be collecting and reviewing your financials and  originating the owner financing loan for you. You'll still will be making monthly home loan payments directly to that homeowner.

Who is Owner Financing Program For?

This program is for Buyers who want to own a home now, but can not qualify for conventional financing through a mortgage company or a bank.

How Quickly can I get approved for and move into the house ?

You can often be approved for owner financing within 1-2 business days. As far as moving date, it'll depend on when your commitment on the lease ends as well as whether or not the home you want to buy is currently vacant and available for occupancy.

How much overall paperwork is involved in the purchase?

Not much at all. The whole procedure takes about 15-30 minutes. Compare this with a traditional conventional, FHA or VA closing where you are signing a 2 inch high pile of documents for 1.5 hours.

 What is the difference between No Bank Qualifying Owner Financing and Lease/Purchase plan?

 With Lease/Purchase you are start out as a Tenant renting a home who has the Option, or right to Buy a house within a specific period of time, typically during your Lease term.

You have the benefits of possession and a guaranteed pre-agreed upon price of the home you will eventually own. But you don’t have financial benefits, such as mortgage loan interest deduction, property tax deduction, mortgage balance paydown, etc.

With Non-Qualifying owner financing you actually own a house and are entitled to all financial benefits of ownership, which may easily amount to $3,000-$6,000 per year in cash back from IRS (please check with your accountant.)

Is Non-Qualifying Owner Financing the same as Non-Qualifying Assumable?

No, it's not the same. Non-qualifying Assumable loans are those where you can take over payments on the existing loans without having to get approval from a lender. There are hardly any of these loans left anymore.

How Long Is The Owner Financing For?

Traditional mortgage lenders are in the business of providing permanent long term home loans to buyers.

Rent-to-own programs and owner financing are usually a temporaty solution that allows you to get your foot in the door, lock the price of the home and insure you can get in REGARDLESS of whether you may have dings on your credit or not.

As you establish or re-establish your credit, or address other issues holding your from getting a regular mortgage loan, you'll need to replace the temporary rent-to-own or owner financing plan with a permanent financing from a conventional mortgage source.

Usually you'll need to get permanent financing after a predefined period of time agreed between you and the home owner who is providing owner financing for you. 

It's something you'll have to discuss and agree upon with an actual homeowner before completing the purchase.

What Closing Costs, Fees and Points Shall I Expect To Pay?

It'll depend on the type of program you're entering.

If you're getting into a home using a Rent-to-Own agreement, you typically won't have any closing costs because the title transfer (home ownership transfer) will happen at a later time, when you obtain financing and complete your purchase.

If you're buying a home with owner financing there will be customary closing costs for the area charged by title and escrow companies that will handle the closing of the purchase for you and the seller.

These are fees charged by the closing company to prepare the settlement statement and handle the closing, attorneys to prepare the legal forms and closing agency, filing fees paid to couty recorder, title insurance policy if you decide to get one, etc. Depending on the sate law there may be a cost associated with getting tax certificates for the property and survey.

Typically all these closing costs don't exceed 1% of the purchase price. Keep in mind, you'll also need to pay for the 1-st year insurance premium to have the home insured against damages.

How Do I Get Started?

Just follow our 7 Steps To Home Ownership plan. Click Here to get going.

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Got 5%-10% Cash Downpayment ?

A Lease/Purchase program might be a perfect solution for you. If you have good steady income and monthly debt payments that are not overwhelming you can often get approved by the owner almost immediately.

Lease/Purchase Basics

Who is Lease/Purchase Program For?

It is designed primarily for 3 groups of Buyers.

Group 1.

Buyers who have minor credit problems which still need to be corrected. To get a loan you will need to upgrade your credit to “A', which typically means, old collections accounts must be settled or paid off, and you should have no late payments on your current credit accounts for the last 12 months preceding the closing of the purchase.

Group 2.

Buyers who don’t have enough cash to cover the downpayment and closing costs. Typically, mortgage companies require that you have about 5.5%-6% of the purchase price in your hand and they’ll finance the rest. In many cases they also allow you to receive a gift from a relative or even a friend for part or all of the cash needed.

Group 3.

Buyers who have been self employed for less than 2 years. The lender will require that you have at least 2 years of self-employed tax returns before they consider making you a loan. If you have been self-employed for more than 2 years, but you are writing off a lot of expenses and showing very little income from the business, you’ll need to change that pattern before you’ll get the loan.

Benefits Of Lease/Purchase

If you belong to one of these 3 Groups Rent-to-Own (Lease/Purchase) program offers you 3 important benefits:

1. You buy yourself some time.

During that time you must work on whatever is stopping you from getting a loan today, your weak link. You must correct your credit, build up the downpayment, or work up a consistent income from self-employment.

2. You lock up the price of the home upfront.

During the term of the agreement the price of the home will not change. Yet the prices of homes in the Austin area lately have been growing at a rapid rate. If you just continue leasing where you are right now, you will likely discover that a year or two from today you will have to pay 10%-15% higher price for the same house you wanted to buy now. Why do that, when you have Lease/Purchase alternative?

3. You will already be living in the home of your dreams.

That's why you decided to buy in the first place, right? You got tired of apartment living and making your Landlord rich.

Common Questions And Answers About Lease/Purchase

Will The Rent Money Apply To Purchase?

Unfortunately, no. The rent is just rent, it does not count towards your purchase.

Who Will Be Responsible For Taxes & Insurance?

Until your loan is approved and purchase is closed, the property owner (not you) is responsible for paying property taxes and having the house insured. After closing of the purchase you will become responsible for paying taxes and getting your own insurance.

Is There A Warranty On Systems And Appliances In The House?

Most home owners offer their own 30 days home warranty policy. If not, it's wise to ask for it. After you take possession you have 30 days to use the house, run the systems in the home, check appliances, air conditioning, heating, plumbing, etc. to make sure everything works good. If you discover something is not working properly, the seller will send the contractors to repair it.

However, this is something you could discuss further with the homeowner extending a rent-to-own plan.

There are also commercial companies selling homeowner warranty insurance known as Homeowner Warranty Shield' that has a coverage of up to 1 year, and may be renewed. A lot of new homeowners buy a policy like that. It costs about $300 per year.

Who Will Be Responsible For Maintenance And Repairs?

While you are on a Lease/Purchase plan you are responsible for ALL repairs and maintenance. Therefore, you should have a professional home inspector  look through the house before you commit to this plan, so you know exactly what you are buying. All new buyers do that, why shouldn’t you ?

Can I Buy Early, Before The End Of The Lease?

Yes, most of the time if you have your loan lined up, and enough downpayment money, there’s no reason to wait until the end of your agreement.

What Happens If I Don't Buy At The End Of The Lease?

You must buy the house by the end of your agreement. If you don’t, your agreement terminates and you lose you original downpayment and any additional money you have contributed towards the purchase.

I Still Want To Buy, But Can't Get A Loan?

If, during the term of the agreement, you were late on your payments, or other credit accounts, if you incurred additional debt, or jeopardized your loan in some other way, obviously, you were not making a serious effort to get ready for the purchase. Therefore, you may not get a second chance.

If, however, you were on time and did everything you could, but still could not get financing, you're in a good position to get another opportunity. You should discuss this with a homeowner in advance though.

The price and terms may change if the agreement has to be extended, but you won’t be asked to move.

Can I Convert To The Non-Qualifying Owner Financing?

Possibly, if you can raise more cash for down payment, or if your budget allows you to make high additional payments towards equity. This can be done on a case by case basis, depending on your Lease payments record. You should discuss this with the homeowner in advance.

How Long Does It Take To Qualify FOr Rent-to-Own Plan And Move In?

Once you submit your Rent-to-Own application you can typically expect to hear back an answer in 1 business day. If you are quick, and assuming the house you want to get is currently vacant - you could be moving into a house within a couple of days.

What Do I Need In Order To Qualify for Rent-to-Own Program?

Rent-to-own program typically require 5% of upfront “commitment' money. It will be applied towards your downpayment or closing costs at the time of purchase. If you don’t have that much, you may be able to make payments towards your eventual purchase in installments.

How Do I Get Started?

Just follow our 7 Steps To Home Ownership plan. Click Here to get going.

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Got Less Than 5% Cash Downpayment ?

Have not saved full 5% for a downpayment so far for a Rent-to-Own program?

If you have high income and some discipline, you may still be able to take advantage of the Lease/Purchase program (see below). You can qualify to build up that equity while you rent.

Depending on your monthly income and debts you may be able to get started on a Rent-to-Own program and gradually build up your down payment over the term of the agreement. The goal is to build 5.5%-6% of your purchase price while you are on the plan.

You will have to show an adequate income that will allow you to comfortably make combined monthly payments according to the terms of this program.

Figuring Out Your Monthly Payments

It's always a good idea to determine how much you can afford and what kind of home price it would translate into.

Why Estimate Monthly Payments?

Knowing the price of the house may not immediately tell you if you can afford it and if you should look at it. Knowing (a) what you can afford on a monthly basis and (b) what payments will come along with the house of a certain price will allow you to quickly determine which homes are for you and which are too pricey.

Figuring Payments Based on Price

The good news, it's really simple to roughly estimate monthly payments on a particular home. Take 1% of the price of the home - that's what your payment will be approximately.

Example.

Let's say you are looking at a home listed at $115,000 on a Rent-to-Own program. You can quickly figure out that your monthly payment will be about 1% of the price, or $1,150, similar to what your total mortgage loan payment (including taxes and insurance) will likely be when you eventually complete the purchase of the home and get a loan.

Figuring Price Based on Payments

Suppose you know you can only afford a certain amount to spend monthly on house payments. What home prices should you look at? Again, it's easy. Just multiply the desired monthly payment by 100 and you'll get a ballpark of the price you'll have to pay.

Example. You don't want your payments to be higher than $1,400. Multiplying $1,400 x 100 gives you a price of $140,000. You should be looking at homes of $140,000 or cheaper.

Exceptions

There are 2 exceptions that will change the 1% relationship between the price of the home and what you can expect your monthly payment to be.

1. If you are buying with an Owner Financing plan and putting a large (20%+) down payment, your payments will go down because a smaller amount will have to be financed.

2. You have less than 5% cash to put down (which is often a required minimum for a Rent-to-Own program). In that case, depending your income, you may still be able to build up your down payment in installments.

That will cause an additional monthly amount to be added to your regular rental payment.

How Do I Get Started?

Just follow our 7 Steps To Home Ownership plan. Click Here to get going.

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To learn about your next action please review: Getting Started