Peggy and I are rehabbers who buy houses in need of repairs or updates. We fix them up and then sell them. If our underlying financing allows it we sell to first time home buyers who cannot get a bank loan to buy their first house. We do this through a process called rent-to-own or officially a lease with option to buy.
Once we have finished fixing up a house we find a buyer who has bad credit scores, a high debt to income ration or both but has a good stable job and sufficient income to be able to buy a home of their own. We then assess whether they will be able to qualify for a bank loan in two years. If they meet all the criteria we then lease the house for two years with an option to buy the home anytime in that two year period.
By using a two year lease the buyer now has a set rent for the next two years, a set purchase price and an option fee that serves as their down payment at closing. From this they can then plan their finances for the next two years in order to fix what’s broke in their ability to qualify for a bank loan. And they get to do this is a renovated home. We encourage them along the way because in fact we don’t make any money from the rehab until they complete the purchase.
While this is not the normal way to purchase a new home it works well for those folks that a bank will not serve. Here is a picture of myself and our newest proud home owner at the closing table. Great gal. We are so happy for her.