In the end, the TB has to qualify for financing.
1. How can just 6 to 12 months paying rent make the difference in qualifying?
2. How can I know that they will qualify before the end of the option?
3. What percent of monthly income for a payment?
4. What questions do you ask, what do you look for in a Mortgage Broker?

Gerry

Gerry,



Time is what people need to obtain traditional financing if their credit doesn't allow it now.



Our lenders take care of that most of the time, but we also run our own credit reports some times. We run their credit and forecast their ability to secure a mortgage within the time of the lease. We also have our tenant/buyers go through a credit repair class with our main lender. This greatly improves their ability to "cash out". The class is $175, which is returned to them by the lender "IF" they cash out.

Note: This is NOT credit counseling. That can be seen as a legal bankruptcy to those who go though it because the company helping you "freezes" accounts so they can repair them.




Our criteria is that they must make 3 to 4 times the rent a month. I.e. Rent is $1,000 a month, they must make at least $800 a week etc. Although we have put them in making less in the past depending on their dept ratio.



It really isn't hard finding a broker/loan officer to work with you. It's getting the right one that's a trick. I have gone through so many of them I lost count. I still use several, but there are a few I bend over backwards to take care of so they take care of me. I give them leads to every person that doesn’t buy and every person that doesn't need to rent to own if "I don't put them into a house". To make it easy on you, the first question I would ask is; do you work with people with bruised credit? If they say yes, tell them you do LO acquisitions and let them do the rest of the talking.
Hope that helps,
Adam

OK, so how do you make your final decision on accepting the TB? Do you send them to the Mortgage Broker first, call the MB and discuss the TB info on the application, or just make an educated(in my case uneducated) guess as to their ability to get financed? Or am I too concerned about this whole deal?

Gerry

Gerry,



Yes, I send them to a lender to see what's "really" going on. Or I run the credit myself and use what the report company calls a "forecast". It's a program that I can add and subtract certain things on their credit to see what it will raise the score to. Of course, that will only give me what their score will be. I then shoot them to a lender anyway. It is VERY important to see the big picture on if they can cash out or not. Especially if I'm taking the house myself SLO, or Sub to etc. Don't get the big money until the end.

Note: I run credit myself mostly on deals out of state. Anything in state I use my lenders to run credit.


Regards,
Adam

Adam,

SLO? I guess thats me.

Gerry

1) It isn't the "paying rent" part of the deal that makes a difference qualifying. It's the overall effort made during that one year period that will determine their ability to qualify. For example, are they paying down existing debt during that time? Saving additional funds for a down payment? Making timely payments as some late payments are dropping off their credit reports?
2) You can't "know" with absolute certainty, Gerry. You make your decision based on your due diligence, you offer assistance along the way, hopefully they make a sincere effort, and let the chips fall where they may.
3) Speak with a mortgage broker about this. There are a couple of good ones on this board. See the Funding Forum.
4) See number 3 above.

My biggest concerns are their monthly income versus monthly expenses, and how much option money do they have to put down. I care very little about past credit issues, including bankruptcies. These days, that is so common and there are so many programs geared toward borrowers with C and D credit, it is almost a non-issue.
Are you "too concerned"? No. But, keep in mind you are dealing with adults who are entering this type of agreement voluntarily. After explaining the pros and cons of the deal, and I do in great detail, the bulk of the responsibility falls upon them. I'll help in any way I can. On the other hand, I can't prevent a divorce, a brand new car loan two months before applying for a mortgage, etc.