Lease/option seems to be a term that is thrown around a lot these days and it seems like everyone is offering lease/options and everyone wants a lease/option.

But before you jump at the first great lease/option opportunity that you find, be sure to understand what you are getting into and protect yourself from ending up with nothing.

So what exactly is a lease/option?

Here's the simple definition:  You lease or rent a house and have the exclusive option to purchase the house within the time frame of your agreement.

Most agreements are for a 12 month period of time.  This means that within the 12 month period of your contract, you can purchase the house for the agreed upon price.

Unfortunately, there is great confusion around this concept and many people end up with a bad taste in their mouth.

As a matter of fact, most people who offer lease/options on their properties don't completely understand how the process works.  All they know is that they've been told that if they lease/option their house instead of "renting" it, they can get it occupied faster and generally have a better tenant.  Plus, the deposits they receive are non-refundable purchase deposits so they don't have to give it back if the tenant doesn't buy the house and they leave.

I've heard many stories from people who put down a sizeable purchase deposit and paid their lease faithfully and on time for 12 months just to be forced out of the house at the end of the lease.  I'm hearing more and more of these sad stories.

So what happened?  Is that legal?  Well, technically it is.  And that's why you need to be aware of what you're getting into and protecting yourself from situations like that.

So here are some questions you need to ask yourself:
    -  What happens at the end of my lease?
    -  What do I need to do to ensure that I will be able to buy the property?
    -  Is the seller doing anything to help me buy this house?
    -  I understand the lease part, but just exactly how do I go about buying the property?

We'll dive into the details a bit further in the next article.

You may have heard this term many times and in many different
contexts during your life, and there is no other place that it is
truer than in real estate in this current market.

Cash opens up opportunities and gives you negotiating power that
wouldn't be there without it.

While everyone is crying that "the sky is falling" in real estate,
there are those who are quietly buying up real estate at rock
bottom bargain prices.  How are they able to do this? They have
cash.  They don't need banks.  They don't need loans.  They have
cash.

These buyers have incredible buying power and sellers will bend
over backward to sell them their house because there are no
contingencies.  Simply... cash.

Now how does this apply to you if you don't have enough cash to
pay all cash to buy a house?

Well, even if you have some credit issues and are looking for
lease/option or owner finance opportunities to purchase your home,
cash is still king.  Cash in the form of a downpayment.

In today's market, even those who have credit scores above 700 are
still being required to bring 20% and sometimes even more to
qualify for a loan.

In a typical lease/option or owner finance opportunity, you will
find that the more of a down payment you have, the more options
and negotiating power you will have.

And with the demand for lease/option and owner finance homes
growing, often times a home will have multiple people trying to
purchase it at the same time.  It happens to our company all the
time.

Well, all things being equal, who do you think the home will get
sold to?  The one with the largest down payment!  Almost every
time!

If you are trying to get into a lease/option or owner finance a
house with little to no downpayment, you will quickly find that
there are not many options for you out there.  $800 down and $800
a month is difficult to get in an apartment, let alone a home
purchase.

The ideal number you should be shooting for is 5-10% as a
downpayment.

When you start getting closer to the 10% downpayment range, you
will find that more owner finance opportunities present themselves
to you where you can go straight into home ownership without going
through lease/option.

Hopefully after the last email tip, you have an idea of how much
home you can afford.  Your goal now should be to start saving for
your downpayment.

Should you stop once you get to 10%?  Absolutely not.  The more
you save up for your downpayment, the more negotiation power you
will have, the lower your payments will ultimately be, and the
better your chances of getting a refinance loan in the future to
get to a really low interest rate on your home.

I hope you found this information helpful.

For most of us, we have no idea how much home we can afford.  We just know what we can afford each month.

I'm going to help you calculate that number.

The first thing you want to ask yourself is, "What is the absolute most I can afford each month on my house payment, while still leaving just enough cushion to take into account any unforeseen surprises that may arise?"

It is important not to stretch yourself too thin and leave no margin for error.  You don't want a blown car tire or a speeding ticket put you in a place where you may not be able to make your payments.

For someone who is trying to get "seasoned" for the banks and create a track record of evidence to increase your odds of getting a loan down the road, the last thing you want on your record is late or missed payments.

Once you've figured out the most you can afford, you need to take into account monthly taxes and insurance that will be included in your payment.

A general rule of thumb, although not completely accurate, would be to figure:
    $150/mo for a house in the $100,000 range
    $200/mo for a house in the $150,000 range
    $250/mo for a house in the $200,000 range

Again, these numbers are not completely accurate and will differ according to the actual property taxes on each property, but it's a good place to start to get a general idea.

So if you can afford $1,200 month, and think you would like to be in a house worth about $150,000, then subtract $200 from your monthly payment and now you know that the amount of your mortgage needs to have a monthly payment of $1,000/mo.

Now we can figure out the size of the mortgage you can afford.

Go to: http://clicks.aweber.com/y/ct/?l=CXMH7&m=1pyGWaVJPlMw6m&b=1O5ehayFowaphpPN1JyULw

This is how it works:  Put in the data on 4 of the 5 fields.  Then click calculate next to the field you want to find.

To figure out how much mortgage you can afford:

     1. Enter 7.99% in the area for your interest rate. (Although rates are currently lower, this is a good conservative number to use, especially if you had some credit issues in the past).

     2. Enter 360 in the "number of payments through life of loan" field to 30 year loan.

     3. Enter 12 in the "payments per year" field to reflect monthly payments.

     4. Enter the monthly payment you calculated after taking out taxes and insurance in the "monthly payment" field.

     5. Press the calculate button at the top next to the "amount of loan" field to find out how much the loan amount is.

You should now have an idea of how much you can finance and be at your payment range.

Remember to also calculate your down payment.  In today's market, getting loans without a downpayment is not an option any more.

You want to anticipate putting at least 10% down to make the chances of getting a loan the greatest.

So take the amount of loan you can afford, multiply it by .10 to figure out 10% of that amount.  That is how much you should have as a downpayment.

So if you can afford a $100,000 house, 10% would be $10,000 for a downpayment.  So you can actually afford a house that is priced at $110,000 as long as you have $10,000 to put down.

So now that you know how much house you can afford, you will be a much wiser shopper when looking for your new home and avoid getting into a situation where you are in over your head when it comes to your housing costs.

If you don't have much of a downpayment saved up now, this would be a good time to start a "downpayment fund" and start saving a little each month.  You'll be surprised how quickly you can build up a sizeable downpayment if you will consistently save each
month.  And hopefully after this exercise, you have an idea of how much you need to save.

I hope this helped.