Expert: Dick Dennis - 5/25/2008

Question
My husband and I have found a home for sale by owner for which the seller has agreed to hold a land contract.  My husband just started a new job and cannot qualify for a mortgage.  We are willing to pay exactly what the sellers are asking, but they also want a large down payment which we do not have.  Are there any programs for this kind of sale?  We are able to pay a high monthly payment.  We have never done this before and could really use some guidance.

Answer
What you describe, Sue, is ideal for a LEASE-OPTION. The reason why you may not want a land contract is that there are a few things that can go wrong with the transaction with which you may not be able to contend. You haven't said in what state the property is located, but with a land contract, unless you absolutely trust the seller, or you know how to protect your interests, you do NOT want a land contract.

If the seller owes anything on the property, like loans, liens or encumbrances, you will never know if he has continued to make his payments on them while you are making your payments to him. It is possible for the property to go into foreclosure without you even knowing about it! And any money you put into the property is lost. Then you do not state who is to take care of the costs of the transaction when you are ready to put the property in your name.

If you have good credit numbers, there are lending programs which would help you, especially someone like you who says she can make large monthly payments. Just keep on asking around.

A lease-option allows you to pay rent on a property for a period of time until it is time to take over title. You may treat the property as if you owned it. Since you do not have a down payment you would probably be required to pay a monthly payment for your down payment over and above the rent you're paying each month. Then the lease stipulates that you get usually one-quarter to one-half of the rental payment credited toward your ultimate down payment (or whatever you agree upon). When you have reached that amount, then you can get the loan you want. This may take two or three years. It is ideal for people who don't have the down payment but can afford the monthly payments involved.

However, I strongly suggest you engage a REAL ESTATE attorney who is quite familiar with lease-options. Actually, it should be two separate documents, a lease and then an option. A lease says you must pay your rent, an option says you MAY buy the property but do not have to if you later on decide you do not want to buy. But you will lose any credits and deposits, unless otherwise agreed. I do wish you well.

Dick Dennis    dixiedee13@aol.com