Lease To Buy Agreement - Key Contract Points To Protect Yourself

Lease to Buy Agreement - What should you do to protect yourself and make it work for you when it comes time to qualify for a mortgage?

In general there are only two reasons why you should consider a lease rent to buy contract for a home:

• You cannot qualify for a mortgage because you have low credit scores and bad credit


• You do not meet either income or assets for down payment requirements of a mortgage loan program.

There may be other reasons, but in any case, if you decide to go with a lease to buy contract to become a homeowner again, there are some things you need to know to protect yourself.

Key Components of a Lease to Buy Agreement

• Make sure that the paperwork is handled by a title company who can record the lease purchase contract. You want to make sure that the lease to buy contract is recorded at the courthouse and that it is associated with the deed of the home you are looking to purchase. With it recorded, it definitively shows when the contract started and what the terms are. An underwriter will be very interested in making sure you contract is legitimate as they evaluate your mortgage loan approval.


• If at all possible, make sure that your money is set aside in a bank account in some type of trustee account. You also want to make sure you get a receipt and make a copy of your check. You also want to keep a copy of the cancelled check once it is cashed. You will be able to use this money as down payment credit as long as you can prove it exists. Just saying that you paid a down payment several years prior will not be sufficient. Copies of everything will go a long way to getting approved.


• Lease payment must be higher than average rent payment. If you are looking to have your monthly payment be applied to a down payment there are very strict rules about how this must be done. First, you must know the average rent in the area for the home involved in the lease to buy. Once you know the average rent, you must set your monthly payment above that average rent. The overage will be what credit you can get for a down payment, but not the amount that is equal to the average rent.
  
  For example, if you set the rent payment at $1,300 per month and the average rent is $1,200 for a comparable home then you can get a down payment credit of $100 per month.
  
  Every year you should check on the local rent rates to see if you need to make an upward adjustment in what you are paying so you can keep getting credit. You can check with a local appraiser for the average rents as an appraiser will be the one who notes the average rent when you try to qualify for the mortgage.


• Pay monthly payments with check - make your monthly payments on time and with a check. The bottom line here is that you have to have proof that you have made your payments on time as agreed. You cannot track a cash payment at all. Cancelled checks are the best form of proof you can provide. Keep all copies of the cancelled checks - you most likely will have to show proof of your payments to the underwriter when you apply for a mortgage.

The lease to buy agreement is a great to buy a home if you have difficulty qualifying for a mortgage. It is not for everyone, but in many cases, you can get into a home with poor credit with a sufficient deposit.