Realty Funding Corp.

Tenants to Homeowners

Let us put you and your family into your dream home NOW! Why wait? No need to wait until you qualify for a mortgage. No need to have a big down payment and money for those expensive closing costs. We can find a home for you and place you in that home within a few short weeks using the Lease With Option Program. Then, while you are already in your dream home, you can be working over the next 24 or so months towards qualifying for your mortgage.

Many people may not NOW qualify for a mortgage for a variety of reasons. The biggest reason today is the “credit crunch” making it almost impossible for many people that qualified for a mortgage only a short time ago to qualify for mortgage financing today. Other reasons could be: not enough money for the larger down payments needed today; little or no credit; checkered credit history; messy legal problems (divorce); new job, etc. Others, who could qualify for a mortgage today, may not want to at this time for a variety of reasons (mostly legal issues.) For these people there are alternative programs for home ownership. One of these is the LEASE WITH OPTION Contract.

The LEASE WITH OPTION Contract is when a Tenant leases a property for a certain number of months with the OPTION to exercise his right to purchase the property during the contract period at a pre-agreed price.

With a minimum of 18-24 documented consecutive on time lease payments, almost all Tenants will qualify for a mortgage based on the FOUR FACTORS in the next paragraph. Usually, a portion of the monthly Lease payment is credited towards the purchase price of the property and the total of these monthly credits may be enough to qualify as the entire down payment (see EXAMPLE below). This means that the Tenant may not have to come up with any money whatsoever to purchase the property at the time he exercises his option. Of course there are still the usual Closing Costs associated with the purchase of a house. Some, most, or all of these Closing Costs, could be paid by the Seller. In many situations, our knowledgeable staff could craft a LEASE WITH OPTION Contract that could very well result in no down payment and, in addition, the Seller paying ALL of the Tenant’s closing costs. Think of it! YOU, as a Buyer, could actually purchase a home with no money out-of-pocket whatsoever!

FOUR FACTORS that determine what a Tenant will qualify for:

  1. Cash and other liquid assets. How much does the Tenant have, where did he get it, where is the money deposited and how long has the Tenant had the money and/or assets. While no money may be needed, some may have to be shown to the bank as “Reserves”.
  2. Job Security and Income. Where does the Tenant work, what does he do, for how long, what does he earn?  Lenders like to see stable employment in the same field and job transfers should always be for more money.  Changes in employment, changing careers and/or earning less money this year than last, are all red flags that will be investigated thoroughly.
  3. Qualifying Ratios. This is the relationship of expenses (DEBT) to earnings (INCOME) expressed as a percentage known as DTI (Debt To Income). Assume your family’s MONTHLY expenses (including rent) total $3,000 while your family’s GROSS monthly earnings equal $6,000. Your DTI would be expressed as 50% ($3,000/$6,000). Traditional lenders do not want to see a DTI exceeding 45% (unless there are large cash reserves or other extenuating circumstances). Most government programs like FHA (Federal Housing Administration) prefer a DTI of 41% or lower. Large monthly debt, credit car, loan and auto payments can seriously curtail your ability to qualify for a mortgage.
  4. Credit History. What are the Tenant’s three Credit Bureau reported scores? Minimum scores for government FHA mortgages should be in the 600 area (sometimes as low as 580 but with solid contributing factors). Banks want to see scores in the high 600s, some even want 700s. How timely has the Tenant paid his bills? It is always wise to pay all debts on time and as agreed.  Not doing so will reduce credit scores significantly. How much actual debt does the Tenant have in relation to his available credit? If there is $15,000 available on the Lines of Credit and credit cards, never have balances exceed 30% ($4,500). The higher the credit utilization rate (higher credit balances divided by available credit), the lower the credit scores will be.

We work with Tenants to find the house THEY WANT. We put together a LEASE WITH OPTION Contract to help Tenants lease and then purchase that desired house. After getting the Tenant situated in their desired house, we put them on a credit “Diet” to correct and improve their credit scores during the course of the lease period. During this process, the Tenant should be paying ALL monthly lease payments with a bank or cashier’s check so that there is a documented history created of all on time lease payments. When anyone is seeking a mortgage, their DOCUMENTED rent and/or mortgage history is one of the most important factors a lender’s Underwriter considers.

With a properly drafted LEASE WITH OPTION Contract, improved credit situation, documented proof that all lease payments have been made on time (for 12-24 months) and the Tenant’s qualification within the FOUR FACTORS above, many lenders will treat such a mortgage application as a REFINANCE rather than as a PURCHASE. The properly drafted LEASE WITH OPTION Contract demonstrates that the Tenant has had an interest in the property of far more importance than just as a Tenant. One example of this would be that the Tenant must maintain and repair the property.

When you PURCHASE a property, the bank lends a certain percentage of the purchase price or appraised value, whichever is LOWER. The Buyer then must QUALIFY for a mortgage using the strict underwriting guidelines of the bank. The Buyer must show the money needed and where he got it. Under the LEASE WITH OPTION Program, the Buyer (our Tenant) could possible be treated as the OWNER and thus allowed to REFINANCE the property making it very possible that NO CASH will be needed for the house purchase. Thus the Buyer has a much easier time in securing mortgage financing. The appraisal alone is used as the basis for property’s value and not the purchase price. Keep in mind that the appraisal may be done almost two years after the Tenant has taken possession of the property. Based on 50 years of real estate statistics, the property has most likely appreciated in value thus making it very possible that the bank’s loan (based on that higher value) will be all that is needed by the Tenant to complete his purchase of the property. This is all made possible through the use of a properly drawn LEASE WITH OPTION Contract.

EXAMPLE:

Let’s look at a $150,000 house with a $1,400 Lease With Option monthly payment. Let’s assume that the landlord is giving the Tenant a $600 monthly credit for each on time lease payment made. Let’s assume that the Tenant paid a 2% Assignment Fee (see below) to obtain the Lease With Option contract. Let’s further assume that the Tenant purchased the property after 14 months of leasing.

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Let’s further assume that the house gained 6% in value over the 14 months to $161,000 and that the Tenant qualified for a 90% Loan To Value (LTV) mortgage as a REFINANCE. Remember that this is treated as a refinance because the Tenant has lived in and maintained the property for 14 months. We use the 6% appreciation figure as this is a little less than the average appreciation over the last 50 years. The bank would thus lend $145,000 ( 90% of $161,000).

Now here is the best part! The Tenant owes the Seller $138,600 after taking the credits highlighted in the Lease With Option Contract. BUT the bank will lend $145,000! Under this scenario, the Tenant will have more than enough money to pay closing costs and could actually walk away with some cash in his pocket. Also remember that the Seller could pay for some, most or all of the closing costs resulting in the Tenant/Buyer putting even more cash into his pocket at closing.

Each transaction is different as each is based on the Tenant’s qualifications as determined by the FOUR FACTORS above. And we must stress that the ever changing economic conditions in our country will make qualifying more difficult at times in our economic cycle and much easier at other times.

What does it cost to get into the program?

It is very affordable! The Tenant will need a one month security deposit at the time the Lease With Option Contract is signed. Then he simply needs each month’s lease payment on the first of each month. This is standard procedure. Sometimes a Landlord might require the last month's rent also.

Here is the only difference. The Lease With Option contract will be ASSIGNED to the Tenant from Realty Funding Corp. for a fee. This Assignment Fee is usually 2-3% of the Option Price. Realty Funding actually leases the property and then assigns the lease to the Tenant for an Assignment Fee. But this fee, whatever it may be, is CREDITED back to the Tenant at the closing when the actual purchase takes place. The Tenant is simply loaning himself this fee and will recover ALL of it at closing.

What homes are available? Homes in all price ranges, one or two family homes, city or suburban residences. The possibilities are endless and it is all up to the Tenant once he is qualified by Realty Funding Corp.

How do I get started?

To get started and qualified, simply fill out the following forms. We will do the rest! Realty Funding Corp. will qualify you using the FOUR FACTORS above as they relate to the information on your Application and your Housing Preferences. We will then find the house you want at the lease payment you can afford. Once you approve the house, we will negotiate with the Seller and enter into a Lease With Option Agreement and then Assign that lease to you.

Lease With Option Application

   

                   

   

               

   

                   

   

               



   

           

   

           


Please be advised that the above Applicant(s) have made an application to Realty Funding Corp., Its Successors and/or Assigns, requesting an extension of credit to the above Applicant(s). The above Applicant(s) authorize you to provide a credit report and/or disclosure to realty Funding Corp., Its Successors and/or Assigns, or any agent or employee therof, of the above Applicant(s) indebtedness or deposit balance(s).
In addition, the above Applicant(s) hereby authorize Realty Funding Corp., Its Successors and/or Assigns, to disclose to any Third Party Landlord/Seller, or any agent or employee thereof, any necessary information regarding the credit history of the above Applicant(s).
I/We understand we are applying for a Lease With Option and NOT A MORTGAGE.

Housing Preferences

Please provide as many preferences that you may have and we will attempt to locate a house that fits your needs and desires.

   

   

   

House Style?:                   

House many bedrooms?:                    Baths:       

        If yes, how many?:           

Air Conditioning?:            Heat Type?:               

Price Range?:       



DISCLAIMER

Realty Funding is neither a Realtor nor Mortgage Broker/Bank. It finds houses, leases them and then assigns said leases to potential LEASE WITH OPTION Tenants for a fee, usually 2-3% of the Option purchase price. Realty Funding is a principal in every transaction, and, as such, needs no licenses and/or permits of any kind. Realty Funding Corp. neither charges nor receives , any commissions from anyone for anything at anytime.

For more information, please fax us at 518-432-0643 or email us at john@leasewithoption.biz.

Investors Self-Directed IRA's and Roths Realtors Loan Officers Mortage Brokers Florida/Vacation properties Owners and Sellers Qualifying for the Lease with Option program Tenants to Homeowners leasewithoption.biz