If you are in the difficult situation of falling behind on your mortgage payments and trying to sell your home, offering it on a rent-to-own basis may help you stay out of foreclosure. I wish I could say for certain, because I hate to see people lose their homes to the bank, but obviously it’s no guarantee. The last thing lenders want right now is to foreclose on your home. They have gotten pretty flexible in working with homeowners to find solutions. Be sure to include them in the process when trying to find a resolution. As you read on you can evaluate whether you think selling your home as a rent-to-own will help you. Critical factors to consider are:

• Monthly Payment Adjusting Up? If your monthly payment has adjusted upwards, will you be able to rent your home to a tenant-buyer for enough to cover the new payment? If not, you will have to cover the difference yourself or get the lender to agree to a reduced payment. There are lenders that will work with you on your interest rate. This is called a loan modification. They usually won’t change your balance but they might change the interest rate and length of loan. Talk to your lender to discuss your options.

• Home Prices Dropping? Do you live in one of the areas where home prices have dropped dramatically? If so, is your home worth much less than your current loan amount? If this is the case you won’t be able to sell it to a tenant-buyer for enough to pay off your mortgage. Do you have the extra money to pay off the difference? Do you need to consider foreclosure? Maybe a short sale is your solution versus a rent-to-own. A short sale is when you get your mortgage company to accept a lesser amount on the payoff of your mortgage than you owe, when you sell your home. This is called “shorting” the mortgage. Many people and lenders have had to consider this alternative with the housing market decline.

• Behind on Your Payments? How much are you currently behind in payments? You will need to bring them current one way or another to stop the foreclosure. The option fee from your tenant-buyer may be enough to cover this. If it isn’t, you might be able to use the option fee to cover part of it and then establish a catch-up plan with your lender.

Yes, you do have choices other than the traditional way of selling your home! Obviously this is the part where I sing the praises of rent-to-own.

Want to learn more about selling your home as a rent to own?  See Wendy Patton’s book, Rent to Sell, Your Hands on Guide to Sell Your Home When Buyers Are Scarce.

If you are like many others who have come to my site to learn how to make more money by investing with little or no money down in lease options, I have an exciting opportunity for you. I am now offering a FREE online DVD to help you Learn How to put $5,000- $10,000 into your  pocket within 29 days using lease options .  I am sure you may have concerns and may be wondering if it is even possible in today’s Real Estate market when you do not have:

• Enough credit to purchase a property with a mortgage
• If you do not have enough cash to buy or put down
• You do not want to get stuck with a property you can not

Take a few moments from what you are currently doing and watch.

Here is what you will learn:

• Why Real Estate?
• What a Lease Option is.
• Why you need a Lease Options.
• 6 keys to success.

Check out the Box located on the right side of this blog and get it now!!

1. Price

Typically buyers won’t try to negotiate price.  They often accept your asking price (which includes a rent-to-own premium) because of the flexibility they receive by doing rent-to-own.  However, should a buyer try to negotiate on price (and they will if they read my book, Rent-to-Buy) there are a couple of ways to counter them.

1.         You want to emphasize the flexibility they are receiving by being able to rent the home before they buy it.  This type of flexibility justifiably commands a greater price than a comparable home being sold conventionally.

2.         You want to emphasize the rarity of what you are offering.  Simply put, a buyer who is buying a rent-to-own home has very few choices in homes.  There aren’t that many out there.  This rarity also makes the home more valuable.

2.         Option Fee

More than any other term buyers will likely try to negotiate a smaller option fee.  In some cases they’ll do this because they don’t have enough money saved, in other cases they’ll do it simply because they don’t want to part with the money.

Obviously the more option fee you receive the better because it means the buyer is less likely to walk away from their money.  When a tenant-buyer tries to negotiate a lower option fee you can counter it by:

1.         Pointing out that the option fee counts as a down payment when they are trying to qualify for a mortgage and the larger the option fee the better it will look to the lender.

2.         (If the tenant-buyer has poor credit) Explain that you are taking a risk by letting someone who can’t currently qualify for a mortgage move into your home and that the option fee is your security against that risk.  Tell them that the option fee conveys their seriousness about the home.

3.         Closing cost contributions

Typically at the beginning of the option period tenant-buyers won’t ask for or won’t know they need to ask for help with closing costs.  This usually comes up at the point when they are applying for a mortgage and discover that they need to pay them.

This is when either their real estate agent or their mortgage broker will tell them that they can ask the seller (you) to help pay closing costs.  The way this is usually handled is that the purchase price is increased to offset all of or part of the closing costs.  Assuming that the home will appraise for enough to cover this.

You may have done this when you bought the home yourself, it’s a very common practice.  By increasing the purchase price to cover closing costs, it’s mostly a wash for you as the seller.  It does end up costing you a little bit with increased taxes, commissions, title fees and so forth based on the slightly higher selling price (maybe a couple hundred dollars depending on the cost of your home).

I recommend granting this concession if you can because it gets your buyers to buy your home.  The cost to you is pretty small so it’s worth it to get your home sold.  If you suspect that your home won’t appraise for enough to cover the closing costs because property values are going down in your market, you may want to encourage the tenant-buyer early during the rental period to start saving some money to cover their closing costs when they get a mortgage, this way you are less likely to have to add them into the purchase price.

I’ve talked a fair amount about why you NEED to offer your home on a rent-to-own basis to get it sold in this market. But I haven’t talked at all about the benefits to you in doing so. After all, most of us hate doing things just because we HAVE to, we would much rather do things we WANT to do.

Here are some of the reasons rent-to-own can be beneficial for you:

1. Higher Purchase Price - Rent-to-own sales typically command a price premium over traditional sales. The buyer is paying extra for the flexibility he receives by not having to do an outright purchase immediately.

1. Higher Rent - You may be able to charge more for monthly rent in a rent-to-own than you would for just a straight rental. I will cover this in more detail later.

1. Cash Flow - If your monthly payments are less than the monthly rent, the difference goes into your pocket.

1. Option Fee - This upfront fee paid to you by your buyer is what secures the purchase price down the road. If the buyer closes on the home, it would be applied towards the purchase price. If the buyer elects to not purchase the home, the option fee is forfeited and still remains yours. Either way you win. If you were to just rent the home, the tenant would put down a security deposit. The option fee is different than a security deposit. A security deposit is owned by the tenant and can’t be used by the owner, except for repairing damages, unpaid rent and other provisions as mandated under state laws.
2. Eliminates the Burden of the Mortgage Payment – If you have already moved on to your next home and your old house is sitting empty while you try to sell it, then you are saddled with TWO mortgage payments. Hopefully you aren’t in this position, but if you are I feel your pain. Ouch! If the house has been taking a while to sell, you know how fast the money coming out of your pocket adds up. It gobbles up any equity you have at a frightening rate. Placing a rent-to-own buyer that pays that extra mortgage can take away your pain.

As you can see, selling your home as a rent-to-own offers a lot of benefits to you: Higher purchase price, cash flow, higher rent, option fee, selling faster and more! To learn more ways a rent-to-own can be beneficial for you check out my book Rent-to-Sell.

When qualifying a good buyer for a lease option you are looking for someone that had a blip in their credit and now they are on their way to financial stability.  When you look at someone’s credit, see if they are on their way up or not.  You can see what they have paid recently and what is still behind.   This will show up on their credit report.   Learn to read credit reports and get set up on a system that works for you.  If you don’t know which system to use, talk to others in your real estate investors group.  They will know which companies provide which services in your area.   You can also work with a mortgage broker to run credit and do the lease option approvals.

Once you have approved a tenant for your lease option home; all you have to do is draft the paperwork and have them sign it all.  You need not give more than 12-18 months to the buyer on an option. This timeframe is most often enough for a good option tenant to get a mortgage.  If at the end of the time period they just need a few more months or they want to extend, it is your option to decide if that is what you want to do.    This is when you can also renegotiate.   Maybe the homes in that area appreciated more than you expected, then you would want to extend, but increase the purchase price somewhat.  You could also ask for another $500-3000 option fee, to extend the option.  You can also raise the rent slightly.   There are times I have given my tenants an extension for free, because of circumstances.

For more information on How to Qualify a Buyer  you can check out my book Investing in Real Estate with Lease Options and Subject-to Deals.

While this housing slump is making it tough for home sellers, there is a balancing factor that’s making it tough for home buyers.  I call it the “Credit Crunch”.

With the severe tightening of the mortgage lending industry, buyers are having a harder time getting mortgages. The subprime mess we’ve all heard about means that many buyers who could qualify for mortgages before are no longer able to. This may be your situation.

This “Credit Crunch” directly impacts you as a potential homebuyer. Unless you have A+ credit or a very large down payment, getting a mortgage may prove difficult. If you haven’t already spoken with a mortgage broker, you should do so to find out if you can currently qualify for a mortgage. If you have already spoken with a mortgage broker and you know you can’t qualify yet, you know about this “Credit Crunch”.

Many would-be buyers despair after talking to a real estate agent and a mortgage broker who tell them that they can’t help them because they can’t qualify right now. This is why you, as a buyer, would need to do something like rent-to-own. It gives you the opportunity to get into your future home now, before you can qualify for a mortgage.

You can learn about How the “Credit Crunch” affects You- The Buyer and more in my new book Rent to Buy. Rent to Buy is your hands-on, step by step, guide to buying your next home as a rent to own.  You can get your next home NOW without having to qualify for a mortgage until later.  This is the solution you need until you can qualify for a mortgage.  This is the solution home sellers need because they can’t find mortgage qualified buyers.  Rent to Buy is a great option in our current real estate market.  Check it out!

Is this you?

You’ve seen tons of homes for sale on the market.  You know it’s a buyer’s market.  You either owned a home previously or you are a first time buyer.  If you owned a home previously you might have lost it to foreclosure, either due to a job loss, divorce or your mortgage rate adjusting upwards.

Now is the time to buy!  After all, you keep hearing in the news about how BAD things are for sellers, and prices are the lowest they’ve been in years. This is true and it is to your advantage.  For most of us, home ownership is our single, biggest source of wealth.  It not only puts a roof over our heads that we can call our own, but it also builds security for our futures by paying down the mortgage and building up equity. For most people, their home is their single greatest asset.

Probably the first thing you did was to start looking on the Internet or checking the local newspaper for homes for sale.  After that, you called a Realtor® and he told you that he would love to help you, but you needed to get approved for a mortgage first. Ugh…you know you don’t have the best of credit and you are not sure if you should even call a mortgage lender.

You decide to make the call to a mortgage lender.  You know what the outcome will most likely be in advance, because of your financial situation, but you do it anyway. After gathering tons of information from you all the way down to how many times a week you floss, he finally tells you that based on your current credit, income, down payment, inadequate amount of time spent brushing after meals, etc. you aren’t currently qualified to get a mortgage. Well, duh! You could have told him that in the first place.  Do not despair.

Rent to Buy is now available.  Rent to Buy is your hands-on, step by step, guide to buying your next home as a rent to own.  You can get your next home NOW without having to qualify for a mortgage until later.  This is the solution you need until you can qualify for a mortgage.  This is the solution home sellers need because they can’t find mortgage qualified buyers.  Rent to Buy is a great option in our current real estate market.  Check it out!

Here is a tip on negotiating from my book Rent to Buy, which will be released on November 10th.  Rent to Buy is a hands on guide to buying a home on lease option from the home buyer’s perspective as well as the real estate agents who serve them.

One of the great things about buying a home as a rent to own is that you have a broad range of terms to negotiate when putting together the deal on your rent to own home.  This means that you can get creative and put together a deal that is good for you as the home buyer, or the real estate agent who is assisting their buyer, as well as still be good for the seller too.  If it’s a win-win situation you’ll have a much better chance of getting the home.

So here is one of the negotiating tips I talk about in Chapter 12 of Rent to Buy:

Don’t Give Away Anything without Asking for Something in Return

This tit-for-tat technique helps ensure that even if you are giving your sellers a key aspect that they want; you are getting something in return.  A good way to handle this is with a question, “If I agree to your asking price, how much per month in option credits do you think is a fair exchange?”

Or, you can ask for exactly what you want, “If I agree to your asking price, would you agree to give me $1,000 per month in option credits?”

By asking a question, you give the seller a chance to voice what they think is a fair exchange for what they are asking for.  It may turn out to be MORE than what you would have asked for.  If it isn’t enough, you can always negotiate up from their proposal.

By stating what you want, you are more limited.  The seller may even try to negotiate you down from this position.  However, if there are a few key things that you really want out of the negotiation, this is a good time to go after them.

Yesterday I rolled things back to the very beginning and explained what lease options are and what they are comprised of.  If you aren’t that knowledgeable about lease options that post is a good place to start.  I also promised that I would talk about why a home seller would consider lease options and what the benefits to the seller are.

Higher Purchase Price – Rent-to-own sales typically command a price premium over traditional sales. The buyer is paying extra for the flexibility he receives by not having to do an outright purchase immediately. I will be going into how to price your house as a rent-to-own in more detail later.

Higher Rent - You may be able to charge more for monthly rent in a rent-to-own than you would for just a straight rental. I will cover this in more detail later.

Cash Flow - If your monthly payments are less than the monthly rent, the difference goes into your pocket.

Option Fee - This upfront fee paid to you by your buyer is what secures the purchase price down the road. If the buyer closes on the home, it would be applied towards the purchase price. If the buyer elects to not purchase the home, the option fee is forfeited and still remains yours. Either way you win. If you were to just rent the home, the tenant would put down a security deposit. The option fee is different than a security deposit. A security deposit is owned by the tenant and can’t be used by the owner, except for repairing damages, unpaid rent and other provisions as mandated under state laws.

Eliminates the Burden of the Mortgage Payment – If you have already moved on to your next home and your old house is sitting empty while you try to sell it, then you are saddled with TWO mortgage payments. Hopefully you aren’t in this position, but if you are I feel your pain. Ouch! If the house has been taking a while to sell, you know how fast the money coming out of your pocket adds up. It gobbles up any equity you have at a frightening rate. Placing a rent-to-own buyer that pays that extra mortgage can take away your pain.

Getting Your Home Sold Faster - In slow selling markets, offering your home as a rent-to-own can help you get a buyer into the house much faster. This option will open up your pool of buyers significantly.

Getting Your Home Sold at All – If your home is just flat out not selling for whatever reason, offering it as a rent-to-own may be the only way to get it sold.

Those are some of the key benefits to home sellers for selling their home on a lease option.  Look, I’m not saying that lease options are the perfect situation for every transaction and every home seller.  But the reality is that some home sellers NEED lease options to get their homes sold.  And there are some great benefits for them in doing so.  As a lease option investor or as the seller’s real estate agent we can do them a great service by offering them this option.  If you want to learn more about lease options and get training in doing lease options, either as a real estate investor or as a real estate agent take a look at my website for lease option training.

Let’s face it, the hard part of the housing equation right now is finding buyers.  Yes, this summer showed some signs of improvement but most real estate economists are calling that a temporary bump now.  Whether you are a real estate agent, a home seller or do lease option investing – you need to find buyers to get homes sold.

If you are a real estate agent have any of your listings said this to you, “Realtor, if you don’t sell my home soon I’m going to have to rent it!”?  If you are a home seller are you thinking about having to rent your home out because it isn’t selling?

If so that home is a good candidate for a lease option.  Trust me, while the pool of conventional buyers may be small right now there are a whole lot of potential lease option buyers.

So how do you find them?

Here are some of my favorite ways to find lease option buyers:

1. Craigslist – The ads are completely free and I get tons of responses from people who want to buy homes but can’t afford to right now
2. Rider – put a “Rent to Own” or “Lease with Option to Buy” rider on top of the for sale sign in the front yard
3. Bulletin boards – put a flyer on community bulletin boards, or laundry room bulletin boards around large apartment complexes
4. Mortgage brokers – Talk with some loan officers you know and give them some flyers to hand out to everyone that applies but can’t currently qualify for a mortgage right now

Those are just a few ideas, but if you take the little bit of effort to do them I can pretty much guarantee that you are going to start generating a lot of rent to own buyer leads.