Hello everyone and thank you for reading. I'm a new real estate agent and I have a couple who needs a home. There are very sweet and I would love nothing more than to make this possible. Here is their situation:

Currently they live in West Palm Beach, FL and are moving to Phoenix by the end of July.

The wife works at Home Depot and has been for 9 years. She nets about $1800 a month.

The husband is a massage therapist and currently makes about $3000-$3500 a month, but after moving he will lose his clients because of the long distance move. He says their credit score is 560, but I'm unclear of whether that's his or his wife's.

They say they want to do a lease option for about $1100.

I'm not sure about how to go about all this. We covered lease options in school, but it was a quick once-over and all I remember is that the buyer pays an non-refundable option fee, and then part of each month's rent is applied to the down payment. I'm also pretty sure a purchase contract gets written up at the beginning of the lease with all the purchase information. So... what the best first step to take here? And are there any other financing options that might work for these people?

Thanks so much!

I would agree that a lease purchase is probably the best way to go with that score, and the income issue. If the lease purchase goes for at least a year, and the buyer keeps copies of each monthly payments cancelled check they will be alright. Once the buyer has ben in the property for a year/six months with a few lenders they can buyout the owner with a refinance based on the appraised value.

560 is pretty low, but not unattainable.

From my understanding (and I am no expert here) a LEase option is handled just like a sale, only there is an extended close of escrow (term of lease). Up front the buyer pays an option deposit that is generally non refundable (you can negotiate this too because it's a deposit).

Every month, the buyer pays rent. A negotiated percent of that rent (or a stated amount, possibly 0) goes as a credit to the purchase price. This means that the buyer is getting a credit at the final purchase of X dollars. This does NOT mean that it's worth any money should they decide not to close.

Everything is negotiable in a lease option/rent to own/ Lease purchase.


From an outsider perspective(with the limited info i have), i would say that a lease option would be a good way for them to go. It would offer the husband some time to get his client base back up, and it would offer them a buffer to improve their credit rating. They need to play an active role in improving it though.

AS far as your commission, it would be paid to you at close of escrow (term of lease) unless you could negotiate a "fee" instead. At that point, the seller would have to cough up the dough.

Let's run a hypothetical situation here.

IF they are looking for a payment in the 1100 range, in Phoenix, they shouldnt be expecting too much home. 1100 would get them in the neighborhood of 200K with creative financing (Pay Option ARM with a 5 year fixed on the front possibly, IF we could use the better credit scores and it met the guidlines)


This is what it would look like (i think)

Purchase price: 200,000
Option Deposit: 6000 (Assuming 3%, Effective purchase price of 206K)
Monthly rent: 1100
Rent credit : ~150 (guess) over a 12 month period ($1800)
Assuming a 5% appreciation in 1 year the home would be worth 210,000
Financed amount: 198,200 (1800 in rent credit comes off the home price)
LTV: 94.3%

Often there are terms involved in the rent credit. Things such as making all payments on time, closing on time, etc.

With that situation, it would be a doable transaction because of the lowered LTV. This is assuming you are buying the property at TODAYS market value. BEWARE because there are several investors selling L2P properties at projected value. i.e. they sell to you at what they think it will be worth in 1 year when then lease agreement is up.

Two things can happen with that. 1. Appreciation overcomes that and the buyer is okay. 2. Appreciation falls short and best case you renegotiate the sale price. If you run across a slimy investor, he can very well stick to his guns and claim your deposit money should you choose not to purchase the property. You're stuck here because if the purchase price is above market value, you're stuck paying that out of pocket.


Another option would be to find out if "their credit rating" means the husband or wife or both. Lets say hypothetically that the husband has great credit, and the wife's is the 560. It might be beneficial for them to purchase a home under his name and then QC her onto the deed after the close of escrow.


There are ways to get this done, you're not out of the game yet but you need more information.


If you have any other questions you can give me a call and I'll do my best to find the answers for you.

James that is a very good post. Thank You!