Pre Qualifying Tenant Buyers in Lease Option Program

11 Replies

I have an assignment Lease Option REI business and was wondering do other Lease Option assignment folks pre qualify their tenant buyers before you assign the lease option agreement and if so, exactly what process is used?

Yes. I have my mortgage broker qualify them the same way they qualify buyers for their lenders. The only difference is their credit score is to low. So basically, their income has to work for the new RTO deal.

Jim,  thanks and that's what I'm doing also.  It's more tedious and time consuming but it substantially increases the odds of the tenant buyer actually closing on the option don't you think?

@Robert Burns I do the same as @Jim Pellerin . Although a lot of my T/Bs are already working with a mortgage broker before they contact me, the broker couldn't qualify them for a mortgage, so then they started looking around for alternatives.

Common reasons for doing an RTO include:

1. Credit score too low.
2. Not enough down payment.
3. Self-employed.
4. New job.
5. New to the country.

But there are other more exotic reasons that sometimes come up too. Motivated buyers are the same as motivated sellers. They're often motivated by something other than money.

What a great idea!  So how do you connect with a mortgage broker for this? Do you have to pay a fee to the broker, because their not making their money, if the T/B isn't going through them and simply referring the T/B to you (for the LO)? 

I called several local mortgage brokers until I found one the was willing to on my prospective tenant buyers to pre qualify them for a mortgage and thereby qualify for my Rent to Own program.  The mortgage broker I use sees this as a way to fill his pipeline of future clients.  My tenant buyers will stay with them to obtain their mortgages at closing so the mortgage broker makes his money then.

I've been working on getting the assignments done on 2 lease option agreements and it's taken a lot longer than I want.  The first one has been nearly 1 month and the second one has been 2 weeks.  I am working with a very thorough and precise mortgage broker and he asks for a ton of info and my TB's are slow to send it all of that stuff.  I've been wondering do I find a less thorough but competent Mortgage Broker who works faster because he requires less documentation.  This is a tough call because I want my lease option deals to work out but I also want to get PAID! Can anyone feel my pain?

@Robert Burns I don't know how it works in the US but mortgage brokers here in Canada can usually give you an yes or no within a day or so. The T/B only has to fill out a 1 page credit application.

You might want to get an application from your broker and have your T/Bs fill out all of their info in one go so he doesn't have to keep going back with questions.

If the T/Bs are dragging their feet maybe they're not the right fit.

Originally posted by @Robert Burns :

I called several local mortgage brokers until I found one the was willing to on my prospective tenant buyers to pre qualify them for a mortgage and thereby qualify for my Rent to Own program.  The mortgage broker I use sees this as a way to fill his pipeline of future clients.  My tenant buyers will stay with them to obtain their mortgages at closing so the mortgage broker makes his money then.

 Question for ya. 

In my experience, people don't really change. They are people. So the person that can't qualify today, probably wont qualify in 12 or 24 months(1), because they are still the same people. If making a car payment on time is too dang hard in 2018, it'll still be too dang hard in 2020.

What's your actual conversion rate like? What strategies do you and your mortgage guy use to keep it as high as possible? 

(1) Newly self-employed being an important exception.

@Chris Mason The vast majority of my T/Bs have been newly self-employed or had a one time financial event that led to a bankruptcy. A few just didn't think to build any credit, or they are new to the country, or young and have very little credit or employment history.

People who are habitually bad at managing their money and credit do not qualify.

@Robert Burns

We use ScreenTheTenant.com for the tenant/buyers tenant screening.  That's going to do the typical tenant screening but most importantly from that screening we are going to know how long it will take the buyer to be mortgage ready.  Then we will make sure that we give the buyer plenty of time to become mortgage ready.  We always want to make sure that we are setting them up to succeed.

Hope that helps,

Chris Pre

Chris,  I tried to open the Screenthetenant.com website and I'm getting a serious threat warning from my McAfee security software.  Have you have any warnings like that from this website?