Midway Real Estate

I have bad credit and need to buy the home I’m renting. How can I buy it?

The Owners of my home are also in a bad way and putting it on the market and are offering it to me first. I have struggled trying to stay working the last five years (unemployed 20 mos. of last 5 yrs) and it has wreaked havoc on my credit. I am working more securely now, but I need to purchase quickly. Other factors – houses are not selling in my neighborhood and remain on the market – one like mine has been for sale over 18 mos., many are vacant and for sale.
I would really like to finance in spite of my bad credit as the security of ownership would bolster my ability to repair and rebuild my credit. I am a single father with custody of 2 school age kids and a first time buyer.

This is a tough one, but here is a suggestion.

First I assume the owner has a loan that has a due on sale clause and cannot be assumed. Try these first if possible.

Next thing if you work at it you can do this. It might be a long shot with each person, but you will eventually find someone willing. You need an investor. This isn’t something like finding one in a thousand like it might seem. A lot of people, at least 1 in 10 or 20 invest in real estate. So every community has a lot of investors. You are going to set up a deal that is too good for them to pass up and then show it to 25 people and one of them will go for it. Put an ad in the paper in the investor section something like invest in this lucrative real estate deal and you will have your phone ringing off the hook of people to try it out on.

Here is what you want to happen. They will buy the house from the current owner, and they will lease option the house to you. Since the market is poor in that area you should be able to get a good deal. Keep in mind the reason they offered it to you first is so they can sell it for more than it is worth and avoid a commission on top of that. So any price they offer you will likely be way more than they need. Unless you are dealing with abnormally nice and fair people.

So lets assume the house is worth 90k to 100k for the illustration here. The range is if you want to sell it quick or let it sit a while on the market. Although the range might be larger the way you describe the area. My guess is the 18 months on the market is one house with a problem that the stubborn owner denies.

First you need to be able to negotiate with the current owner. They can sell the house fast with an agent for 90k, of which 82k is what they get, 5400 commission plus 2600 taxes and closing fees. So you can offer 90k-5400 and it will be the same for them. They have to realize this is true so take time to explain it. If they agree that they would sell it for that then you would do best to put an offer in writing and write in the buyer as “your name and/or assigns”. The “and/or assigns” means you can assign the contract to someone else. The investor you will now search for.

You will need more time than average to close, which might trouble them(might need to raise the price a bit). Or, you may need to add something in the contract like this contract is void if the owner happens to find another buyer willing to pay at least $90k. This way they can still try to sell it while you put the deal together. They will get to keep your earnest money as well if you fail to buy the house, so put as little as they will take, but it does need to be at least $100 or so to be considered a legal contract. You might also add something like more earnest money, to the tune of $100 will be handed over each month to keep the contract good for up to 90 or even 120 days if they will go for it.

Now you will try and find an investor. It has to be a good deal for them and of course you would like it to be a good one for you. Part of your pitch will be that you are trying to split the good fortune and that since you “found” the deal you want some of it. So they are going to buy the house for the contract price you negotiated of 84600. Then simultaneously lease option it to you to buy it for 100000 in three years, or however long you think it will take you to save up enough money and build up your good credit to buy a house. Presumably the house will be worth more than 100000 or you need to lower your price. Be sure this option contract gets recorded along with the other papers.

The lease part of a lease option works like this. You rent it for say 800 a month now, assuming this is market rent you will start renting it for 900 a month and 300 of that goes towards your down payment (all negotiable of course). So if you end up buying it you only pay 600 a month rent. If not then you paid 900. Good for both sides. You will also agree to handle all repairs that cost less than $100 or some other number. This is so the new owner gets few or no calls from you, and you take good care of it cause you plan to own it some day. So at the end of 3 years you have 300 * 36 or 10800. So you actually buy it for 89200 in 3 years after your credit is good. Hopefully you can get a loan then.

The option part is an option to buy. You have to pay them something up front for this. The will want it to be like a good down payment, you will want it to be a minimum $100 or so to make it a legal contract. You will want to put a renew option to add another year at the end just in case you find that you are still having credit trouble and need time to set up another investor. It would just be something like the contract can be extended for one extra year if you pay $500.

You might be able to get them to finance some of it too, like agree to carry a second mortgage of 8000 so buy the time you buy it you only have to borrow 80% of the loan from a bank or mortgage lender, something they will look favorably on.

This will be a major undertaking, but you will get your house if you decide to.

Good luck.

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