There are basically three ways to find a home that fits your needs and negotiate terms with the Seller or Landlord of the property. Execute a contract that is a lease with an option to buy the home at some point in the future. Work within your budget to create a lease option contract that works best for you, or negotiate a lease-purchase.

Rent to Own

Rent-to-own homes provide buyers-tenants and sellers-landlords additional options during questionable times for the market or the individual parties. The general agreement allows for a potential buyer, who may not have the capital to buy the house out-right or the credit to get a loan, to pay a deposit up-front, traditional rent and a rent premium and live in the desired home immediately.

The deposit on a rent-to-own is usually between one and five percent of the property price. The traditional rent goes straight to the seller-landlord, as in any other rental agreement. The rent premium acts as a further deposit toward the purchase of the house. Most rent-to-own contracts are fairly short term – one to three years is the usual length – and the price of the property is usually determined by a professional appraisal at the time of contract signing.

Lease Option

A lease option allows the buyer-tenant to work towards the purchase of the house without an obligation to buy. This arrangement provides the buyer-tenant 12 to 36 months to save money or raise a credit score that is slightly below the needed one. A lease option also reduces the potential buyer’s anxiety about making the long-term commitment of purchasing a home and provides them time to further consider the pros, cons and responsibilities of home ownership. At the same time, a lease option agreement gives the seller-landlord more security than with a traditional renter. The tenant can ultimately decide not to by the home, but he or she usually forfeits the original deposit and the rent premiums paid every month.

Example Lease-Option transaction:

• Purchase price of the home is determined to be $215,000
• Monthly rent payments will be $1,500
• You will receive a 50% rent credit ($750 per month).
• You need between 2.5% and 7% in up front Option Consideration. Let’s say your budget allows for $6,000 for Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial payment of $7,500.

[Please note: Option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home.]

Suppose you paid all your monthly rent payments on or before the due date and you choose to buy the rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before you even own the home! Here’s the math:

You started with $6,000 and by paying your rent on time your equity position grew 150% (another $9,000) for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000 in a year with all the costs of living constantly on the rise.

You don’t need an almanac to know that traditionally, the months of December, January, and February have been slow or “cold” for buyers, sellers, and Realtors.  But this year we have the perfect opportunity to heat up those months with the twin warm fronts of a credit of up to $8,000 to qualifying first-time buyers, and a new credit of up to $6,500 for families that have lived in their homes for at least five years and wish to “step up” to a new home.

Homes must be purchased or under contract by April 30, 2010 which is great news!

This deadline creates a sense of urgency that normally doesn’t exist this time of the year.  So, the key is how do we make the most of this and get 2010 off to a fantastic start?

One of the advantages of traveling and working with Realtors across the country is the ability to learn, first hand, how many markets can differ yet operate within similar environments.  Gleaned from my travels are some ideas that I have employed myself or have learned from others:

1)      Make future tax credit dollars work for your buyers today.

Many states offer a ‘first time buyer bond program’.  Some of those states allow qualifying borrowers to leverage their future tax credit with what the mortgage industry typically calls a ‘soft second’ mortgage.  This ‘soft second’ can be used towards their down payment (please see your states first time buyer programs websites for their specific rules and eligibility guidelines) and help your buyers/borrowers make use out of their tax credits now versus waiting until 2011 when they file their 2010 taxes.  This ‘soft second’ has to be paid back within a specific period of time after they file their taxes, so please check with your preferred lender for additional details.

2)      Home buyer Seminars targeting both ‘first time buyers’ and ‘move-up buyers’.

A proven marketing technique (if done well) is home buyer seminars.  Modify these seminars to include ‘move-up buyers’.  The new tax credit extension is also an expansion to include those folks who have owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date.

Many of these folks commonly think that they cannot move since their home may be worth less than what it was.  Short sales notwithstanding, the fabulous home affordability index (mortgage rates as compared to home prices) positively impacts many families.

Consider the buyer who bought a $300,000 home but wanted that $400,000 home on the other side of town.  Well if their market is off 15%, although their home has lost $45,000 in value, the home they wanted to buy costs $60,000 less.  With mortgage rates probably lower than what they secured a few years ago, that new home is a great deal!

3)      Merchandise the tax credit to the fullest extent.

Help your sellers get the attention they deserve by using sign riders and/or lawn signs that remind everyone about the tax credit extension and expansion.  Use your social media outlets to educate friends, family and followers.  Remind folks that this time of the year is a great time to buy.

4)      Use the new BH&G Real Estate iphone application called ‘Home Selection Assistant’.

Although a bit self serving, I can honestly say that the new Home Selection Assistant is one of the best buyer tools on the market today.  Designed by an experienced marketing team dedicated to the consumer experience, the BH&G Real Estate Home Selection Assistant allows your buyers to take photos, organize information, rank amenities, learn about the neighborhood, and compare features of different properties – all in real time.  Beyond cool, this new tool is effective and practical…….and will help you grow your buyer business.

What ideas do you have to ensure spring comes early this year?