Lease Purchase Buyer FAQ's | MJ Housing Solutions

Lease Purchase FAQ's For Buyers

Here are some of the benefits of purchasing a home with a lease purchase:

Low down payment (option consideration), 3-10%. Goes towards purchase price.
Many past credit problems are not a problem as we will help you with credit repair if necessary.
Less qualifying restrictions.
Purchase price is agreed upon and locked in ahead of time.
You are able to check out the area and house thoroughly before purchasing the house
Any equity gain while you are living in the property is yours when you exercise your option!
Option fee is fully credited towards the purchase price.
Part of your rent is credited towards the purchase price or closing costs.
We work directly with loan officers to assist you in obtaining permanent financing

1. What is required to qualify for a lease purchase property?

When you apply for a lease purchase property, the main items that are being reviewed are:

Debt to Income ratio. 43% DTI is the target, but can be higher in some cases.
Bankruptcies? (If so, there are certain time restrictions that have to be overcome.)
Foreclosure or short sale? (Again, certain time restrictions are set forth by the lenders.)
Tax Lien? (Normally must be paid for finance.)
Credit Scores: Although other items are important, most lease option specialist are looking for applicants that are no more than 60 points away from FHA finance, around 600 or higher. Lower scores may still work. It just depends on your whole financial profile. You can check your score at CreditKarma.com)
Judgement? (Must be resolved for most lenders.)
Analysis of your credit report by one of our experts. $25-50 fee for each buyer.
Ability to get mortgage ready within the lease period, usually 12-18 months (can go longer in some cases)
Pass a background check. Any convictions will be reviewed case-by-case.

Perfect credit is not required, but bad credit may require participation in a credit repair service. Also, you will need to qualify for a loan and complete the purchase of the house during the lease term (12-36 months). Click here to see up to date information on mortgage underwriting guidelines. The option fee is not refundable if you do not follow through and purchase the home. Therefore we do a thorough screening procedure to make sure we know how long it will take you get mortgage ready. We set you up for success. The total amount required for move-in is the option fee stated on the property, plus the first month’s payment, plus about $500 in closing costs. If a credit repair program is required, that is an additional cost. We also highly recommend you purchase a home warranty (approximately $500) because you are 100% responsible for maintenance, just as a homeowner is responsible.

2. What are my responsibilities during the lease option?

During the option period, you will be working on clearing up anything on your credit file that needs to be addressed. You will be responsible for all maintenance just as any homeowner. We will split the cost of a home warranty for one year if you decide to purchase one (highly recommended). Once you are mortgage ready, initiate getting your mortgage to complete the purchase of the property.

3. How does insurance work?

While you are leasing, the owner maintains hazard and flood (if needed) insurance on the home. You will need to get renter’s insurance to cover your personal property. When you close your purchase loan you will get a home owner's policy in your name.

4. What happens if the value of the house goes up or down during the option period?

No one can predict what home prices will be next year or beyond. If the value of the house goes up, you get the increased equity. If the value of the house goes down, you would lose some equity, just as any homeowner would. It could also impact the down payment required to get financing. When you get your mortgage, if the house does not appraise for the agreed purchase price, the homeowner can get a 2nd appraisal, extend the lease option period, or accept the lower price. Before we set the lease option price, we look at comparable sales and predictions for what is expected in the local area so we know what the property should appraise for. If desired, the tenant-buyer can get an appraisal done before entering the lease option.

5. Who do we make payments to?

Monthly rent payments will go to the homeowner. The option consideration will go to MJ Housing Solutions and will be credited towards the purchase of the house. If MJ Housing Solutions owns or manages the property, the rent payment will also go to MJ Housing Solutions.

6. Why is the down payment not refundable?

The down payment is not refundable if you do not follow through on purchasing the house. If it were refundable, that would the same as regular lease, and we would not be able to lock in a purchase price, or offer a rent credit. We will screen you with a mortgage expert who will tell you what you need to do to get mortgage qualified, and how long it will take. You will need to follow the steps to get mortgage ready during the lease option term which may include enrolling in credit repair.

7. Is there a rent credit?

We offer a rent credit which you can use towards your purchase of the house. The amount of rent credit will vary depending on the price of the house and is based on a 12 month lease option. For example: If the rent credit is $300/mo for 12 months, or $3600, you will receive a $3600 credit when you close the purchase of the home. If you close in less than 12 months, you still receive the full amount. If you close after 12 months, the amount stays at $3600.

8. How can I be sure the owner of the house is making their mortgage payments (if they have one)?

As part of the paperwork, the tenant-buyer will receive contact information for the homeowner’s mortgage company and will have authorization to verify that mortgage payments are being made on time. If the the tenant-buyer desires, we can set up a 3rd party escrow company to collect rent and make any mortgage payments. There is an extra fee each month for this that would be charged to the buyer, approximately $20/month.

9. How do I know the program is legitimate?

We have been in business since 2003 and have done many lease options in compliance with Texas Property Code. The paperwork is not complicated, and you will have the opportunity to have the paperwork reviewed by your own attorney. Make sure it is someone knowledgeable about Texas Lease Options and the Texas Property Code. We have a specific attorney knowledgeable on lease options that can do the paperwork if you desire. There is an additional fee for that.

10. What are the total move-in costs?

The total move-in cost will be the down payment and one full month’s rent. The 2nd month will be prorated rent based on what day of the month you move in. If you desire to have the attorney to do all the paperwork their fee is $1000.

11. Who is responsible for maintenance?

The tenant-buyer is responsible for all maintenance just as a homeowner would be. You can inspect the property yourself, or hire an inspector to confirm everything is in good working order. For the first year, we will split the cost of a home warranty with you. You purchase the home warranty that you want, and we will reimburse you 50% of the cost, up to $300.

12. How does the lease option application process work?

If you are interested in one of our homes for sale with a lease option, these are the steps.

Fill out the initial application form by clicking on the YOUR NEXT STEP button at the bottom of this page.
Set an appointment to go see the house and neighborhood and decide if you want the house.
Show proof of funds, and make a deposit equal to first month’s rent to hold the house. This is refundable if you are not approved. Note, the property remains on the market until this deposit is received. This can be paid using Venmo or Paypal.
Sign this FAQ page.
Complete tenant-buyer screening with Handcock Mortgage, 281-851-4963 ($50). Usually 1-2 days.
While awaiting approval, review the paperwork that will be used and understand all aspects of the lease option agreement.
Once approved, complete any further inspection of the house if desired. Note, after notification of approval, the lease option paperwork must be signed within 3 days else the property will go back on the market.
Set a time to sign documents. Start date of lease must be no more than 30 days from date of signing.
Schedule your utilities to be turned on.
Closing day. Sign documents, make the down payment, and get the keys.

Note 1: The terms lease purchase, lease option, and rent-to-own are used interchangeably.
Note 2: For a lease purchase, the term option consideration, option fee, or down payment are used interchangeably.
Note 3: Subject to lender approval, option consideration can generally be counted as mortgage down payment funds. Check with your prospective lender.

Prospective Tenant Buyer(s) Sign Here: __________________________________ Date:__________

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