Lease Options and Homes on Contract

With today's credit market wound tight as a drum, it is no wonder that more and more buyers and sellers are making deals happen using seller financing. There are many ways to create a deal that works for both the buyer and seller, both of which may be in a situation where they need to make something happen. When the seller holds a note with the buyer, the buyer skirts around your typical lender that may require 700+ credit scores and a 10 percent down payment. Especially as today's consumer is strapped for cash, the down payment piece is critical. For example, in my hometown of Yakima, Washington, homes that are moving in the marketplace are in the $150,000 to $200,000 range. If a buyer were to use a convential loan to finance a home, they would a minimum of 3% down ($4,500 dollars) or more than likely 10% down ($15,000). And that's on the low end of home prices, this could be as high as $30,000 on a $300,000 dollar home. It's not that the buyers can't make the monthly mortgage (at $150,000 you could probably stay under $1,000/month), but rather the down payment, credit score requirements, and proof of income hurdles are set too high.

With a seller financed transaction, both the buyers and sellers win. The buyers get into a home for smaller than normal down payments, usually between $2,500 and $5,000. The sellers get a stream of income going forward, obviously the terms vary, but some sellers are getting a 200 basis point (or more) spread on the owner term interest rate and thier current mortgage interest rate. Plus, the principle balance is usually substantially lower than the contract purchase price of which the monthly payment is based. One of the greatest benefits of a contract home is that you can usually move very quickly to close the transaction. Where you would normally be 30 to 45 days out on a traditional home purchase, you can sometimes close in as little as 2 weeks when buying a home on contract. Sometimes you just need a little creativity to make things happen in a slow market.