Cleveland Real Estate News

Yesterday I wrote about navigating the Lease Purchase process. Today the focus on your lender’s perspective, and believe me when I say, their perspective is important. Lease Purchase  is not something to undertake alone. Team up with your lender. In fact, this team should ideally be in place before you find the home you want.

Your lender can help you know:

1. What you need to ‘clean up’ on your credit before purchasing.

2. How long your lease term should be. This could be because of credit issues or could be because of a need for a salary/debt to income ratio improvement.  Or any number of things. Seriously, do not go it alone, work out a plan. Then we can find a house!

Here are some tips from two lenders.  The first one is Darrin Kresevic of First Place Bank, based in Solon  He worked with one of my buyers and now sends email newsletters to me.  I find Darrin very informative and knowledgable about lending. Here is what he kindly provided when I asked for tips on what to consider when thinking about a Lease Purchase.

“Lease to own can be tricky. Rent credit for option to purchase is an acceptable source of funds toward the borrower’s down payment. Credit for the down payment is determined by calculating the difference between the market rent and the actual rent paid for the last 12 months. From the lenders perspective the market rent is determined by a lender approved appraiser when appraising the property. For example the monthly market rent is $1,000 and the rent paid is $1,200 the credit available for down payment would be $200 per month.

As the lender we are required to obtain the following:
-          A copy of the rental / lease option agreement evidencing a minimum original term of at least 12 months, clearly stating the monthly rental amount and specifying the term of the lease (for example, market rent is $1,000 and the actual rent is $1,200 with $200 being credited from seller to buyer at closing towards buyer down payment).
-          Copy of all consecutive canceled rent checks for the last 12 months or actual term of lease if longer. Make sure rent is paid on time or early – this is a zero tolerance issue!
-          Market rent as determined by the lender approved appraiser.
-          A copy of the canceled check for any deposit paid at execution of the rental / lease option. (make sure the original rental / lease option agreement stipulates that the deposit paid is to be credited to the purchase price upon title transfer – if there is a separate deposit paid as a security deposit the agreement needs to stipulate that)

If the reason a person is looking at a rental / lease option agreement is due to poor credit, do not just rely on the on time monthly rent payments as the sole source for reestablishment of credit. Do not bury your head in the sand when it comes to repairing your credit. Take an aggressive approach to requesting your credit report from the three major agencies; EQUIFAX www.equifax.com, TRANSUNION www.transunion.com and EXPERIAN www.experian.com and write letters of dispute for incorrect info, pay off old bad debts and open 3-4 new accounts to establish new history even if you have to use a secured credit card. It goes without saying but I’ll say it anyway, limit the use of the secured credit card, don’t charge more than 30% of the credit limit and pay in full each month. I recommend and encourage clients to contact a credit repair company to help ensure success.”

You can reach Darrin – 440 349 7550  or via email – dkresevic@fpfc.net.

Darrin mentions contacting a consumer credit company to ensure your credit gets repaired properly and efficiently.  Remember, you need an organization that ends in .org not .com for this one. There is no reason to pay a lot of money for this service when there are excellent non profits who may charge a nominal fee (the CCC  for example, is a good place to check out and it’s Better Business Bureau approved).

The next lender is someone I’ve trusted to know lending rules and communicate well with clients - many years of experience!  Bob Wilson, Finance Manager at Howard Hanna Mortgage Services.  Here is what Bob had to say:

“Make sure all collections, judgments and charge offs are paid in full as soon as possible.  Make sure the balance on all revolving credit is kept to 50% of the credit limit and most of all payments are made on time.  No lates period.”

Bob can be reached at 216-373-7450 or bobwilson@howardhanna.com.

You really do need to string 12 months of ‘no late periods’ in a row.  Maybe you already have six months in a row, and that is your only issue, and so you can try to find someone who would give you a six month lease period.  I had that work once; that client is still living in the home (about three years later?) he purchased six months after leasing.  More common is to find someone who wants you to do a 12 or 24 month lease. Which is not bad when you need time to get your downpayment squirreled away or credit repaired.

 To recap: talk to a lender, develop a financial plan, talk to a Realtor® and start finding your ‘lease to purchase’ home.  It really is a team effort, and that is not a bad thing!   Peace Out – 3C