First lease to own option. Need help!

2 Replies

 I am hoping to get some guidance on a situation I am in. I recently just purchased four single-family homes in KC Missouri. One of the tenants has reached out and showed interest in a lease to own option. She has been in the house now for 4 1/2 years and would like to purchase it. She is currently on section 8 housing assistance. This would be the first lease to own option I have ran.  I am currently thinking of doing a three-year period and sell the house for about 15,000 more than what it appraised for. My question, are there standard lease to own contracts I should use? Or should I have a lawyer write one up for me? Other question, can she use her section 8 housing  assistance for a lease to own option? 

Originally posted by @Taylor Colligan :

 I am hoping to get some guidance on a situation I am in. I recently just purchased four single-family homes in KC Missouri. One of the tenants has reached out and showed interest in a lease to own option. She has been in the house now for 4 1/2 years and would like to purchase it. She is currently on section 8 housing assistance. This would be the first lease to own option I have ran.  I am currently thinking of doing a three-year period and sell the house for about 15,000 more than what it appraised for. My question, are there standard lease to own contracts I should use? Or should I have a lawyer write one up for me? Other question, can she use her section 8 housing  assistance for a lease to own option? 

 I don't know the ins and outs of Sec 8 housing, but I know a little something about Lease Options. Normally you get an Option fee from the buyer that is non-refundable. You don't have to, but it is wise to. Also, for her to refinance out of the Lease Option at some future date, the house will have to appraise for enough to justify a loan to pay the Option amount. Any Option fee gets applied to the sales price. 

So, using round numbers, say the house is currently worth $80,000. You sell the house on a 3 year Lease Option for $100,000. You get $10,000 as a non-refundable Option fee. She still owes $90,000. Three years go by. She applies for a loan. Her credit still sucks. What do you do then? 

Or, her credit is pristine and the house appraises for $90,000. What do you do then? She may be able to get an FHA loan with 3.5% down So, she can borrow $87,000 and she has given you $10k. You apply the $10k to the loan as the 3.5% plus down and all is good. Except, interest rates have gone up and now she doesn't qualify because she doesn't make enough money? Or her ratios are out of whack. What do you do then?

I would have her talk to a mortgage broker about her ability to get an FHA loan. Once she has gone through the process, she will be educated as to what she needs to do to be able to qualify, and you will know if there is even a chance of her qualifying. First, before you do a Lease Option with her, find out if she can finish the deal.

It isn't likly a SEC 8 tenant will have enough cash to pay an option fee large enough to justify you holding the house for her for the length of time it will take her to get approved. HUD does have some home ownership voucher programs that work like SEC 8, but the tenant has to participate in a voluntary financial education program that takes year, and your housing authority has to participate. You can find out if there are options in your area on the HUD website.