You can ask your buyer to simply obtain a credit report and submit it to you before purchasing the property. But a lease option is for those with bad credit. As long as there is a down payment, credit shouldn't be an issue. If they stop making payments you keep their option payment and find another tenant-buyer.
In doing lease options, I would have all interested parties complete a lease application. On my application, we ask the prosepctive tenants
"When we run a credit check on you, will we find any discrepancies? If yes, please explain."
You would be amazed at what they will tell you. Even though lease options work well for those with bad credit, it might not benefit you if you got a L/O tenant in your property who couldn't get a loan for another 5 years due to their past problems, if your intention was to cash out soon.
The other thing to consider is that you obtain a non-refundable consideration fee up front of 3-5% of the property value. This has worked well for us.
We have our mortgage broker run a credit check. First he knows he will do the closing, so if he runs 3-5 ($27-$45) he knows he has the return in the long run. Plus he can tell us how long and what has to be done to get the t/b's financed. There is no charge to us.
Sire
How is your mortgage broker able to provide you with their credit report? Doesn't he have to have permission from your T/B to run the report? I have a good friend who is going to be getting a new job as a senior loan officer, how would you recommend I approach him for access to information. We are close so he'll provide me with anything I need. What information should I ask for?
If I get 10% down or more and verify employment and past landlord references, then I don't do a credit check. In my area, this is 20k down or more. Someone putting this kind of money down is serious. If not, then they lose their 20k and I get to do it again.
Otherwise, find a good mortgage broker who has COMPLETED L/O refinances in the past and they will be able to help you. They will run the credit checks for you at no cost since they will be getting the deal down the road. You do get the Tenant/Buyers permission as I have the tenant/buyers fill out a standard mortgage application (I think this is available on Bronchick's site for free download if you need it).
Quote:
On 2003-04-03 22:38, edickens82 wrote:
You can ask your buyer to simply obtain a credit report and submit it to you before purchasing the property.
I DISAGREE!
Here are the reasons:
1. They can easily modify this document on their computer and have it read out however they like. (from experience)
2. If you do not get a sizeable down payment (10% or more), it is my recommendation to run everything through a mortgage broker.
Here is a typical scenario:
I run an ad in the paper.
I get 50+ calls on the deal and tell them I am having an open house on X day between 12-1:30 pm (have a short window of time here so you have more people going through the property at once)
Let them know that these properties move EXTREMELY fast and your qualifications are based on the amount of money down, their ability to make the monthly payment, and their future ability/desire to obtain a mortgage.
At the open house, reiterate this same point and have them fill out applications. At top of application have the amount of money down as an empty box but let them know that you require 3% as a minimum if the house is in good shape in a good neighborhood.
Now, take all of these offers you have and submit them to your mortgage broker you are partnered with.
My mortgage broker sends me a list back the following day in an excel spreadsheet with each candidate in a ranking order on when they will qualify for a mortgage.
I make my selection based on the amount of money down and then how quickly they can qualify.
If there is anyone that has a very small amount to put down and can qualify for a mortgage now, then I turn them over to my realtor partner who can work the lead and will then owe me a favor when they get distressed properties.
There is more to it than this but this is a brief explanation. Sorry for any spelling or grammar problems as I typed this out in a very short time.
We fill out a pre qual sheet. We do not see the credit report, he tells us about the credit.Yes it does cost my broker a little, but he knows he has the deal. One of the first things we were told to do was find a mort. broker. We looked forsomeone who specialized in the bad and rough credit. FICA 500+ If you find someone who does this, you have found your bad credit broker.
If you build a good repor with someone like this they will be glad to help. If you close 2 a month to 2 a year, how often do they get repeat business? We are better than referals. Just be honest.
Sire[ Edited by sire on Date 04/11/2003 ]
Once again, TCI saves the day - My Mortgage Broker said he would run credit reports for my prospective tenatnt buyers....at $25 a pop!!!! I knew this sounded high, so did a search on TCI, and voila - A little leverage to negotiate with my broker...or take the business elsewhere. Thanks again to everyone that takes the time to impart knowledge on these forums.
You can ask your buyer to simply obtain a credit report and submit it to you before purchasing the property. But a lease option is for those with bad credit. As long as there is a down payment, credit shouldn't be an issue. If they stop making payments you keep their option payment and find another tenant-buyer.
Ervan
edickens82@yahoo.com
Hi Rajwarrior,
In doing lease options, I would have all interested parties complete a lease application. On my application, we ask the prosepctive tenants
"When we run a credit check on you, will we find any discrepancies? If yes, please explain."
You would be amazed at what they will tell you. Even though lease options work well for those with bad credit, it might not benefit you if you got a L/O tenant in your property who couldn't get a loan for another 5 years due to their past problems, if your intention was to cash out soon.
The other thing to consider is that you obtain a non-refundable consideration fee up front of 3-5% of the property value. This has worked well for us.
Best of Success!
BAMZ
We have our mortgage broker run a credit check. First he knows he will do the closing, so if he runs 3-5 ($27-$45) he knows he has the return in the long run. Plus he can tell us how long and what has to be done to get the t/b's financed. There is no charge to us.
Sire
Sire,
That sounds like pretty sweet deal!
BAMZ
Sire,
How is your mortgage broker able to provide you with their credit report? Doesn't he have to have permission from your T/B to run the report? I have a good friend who is going to be getting a new job as a senior loan officer, how would you recommend I approach him for access to information. We are close so he'll provide me with anything I need. What information should I ask for?
If I get 10% down or more and verify employment and past landlord references, then I don't do a credit check. In my area, this is 20k down or more. Someone putting this kind of money down is serious. If not, then they lose their 20k and I get to do it again.
Otherwise, find a good mortgage broker who has COMPLETED L/O refinances in the past and they will be able to help you. They will run the credit checks for you at no cost since they will be getting the deal down the road. You do get the Tenant/Buyers permission as I have the tenant/buyers fill out a standard mortgage application (I think this is available on Bronchick's site for free download if you need it).
Quote:
On 2003-04-03 22:38, edickens82 wrote:
You can ask your buyer to simply obtain a credit report and submit it to you before purchasing the property.
I DISAGREE!
Here are the reasons:
1. They can easily modify this document on their computer and have it read out however they like. (from experience)
2. If you do not get a sizeable down payment (10% or more), it is my recommendation to run everything through a mortgage broker.
Here is a typical scenario:
I run an ad in the paper.
I get 50+ calls on the deal and tell them I am having an open house on X day between 12-1:30 pm (have a short window of time here so you have more people going through the property at once)
Let them know that these properties move EXTREMELY fast and your qualifications are based on the amount of money down, their ability to make the monthly payment, and their future ability/desire to obtain a mortgage.
At the open house, reiterate this same point and have them fill out applications. At top of application have the amount of money down as an empty box but let them know that you require 3% as a minimum if the house is in good shape in a good neighborhood.
Now, take all of these offers you have and submit them to your mortgage broker you are partnered with.
My mortgage broker sends me a list back the following day in an excel spreadsheet with each candidate in a ranking order on when they will qualify for a mortgage.
I make my selection based on the amount of money down and then how quickly they can qualify.
If there is anyone that has a very small amount to put down and can qualify for a mortgage now, then I turn them over to my realtor partner who can work the lead and will then owe me a favor when they get distressed properties.
There is more to it than this but this is a brief explanation. Sorry for any spelling or grammar problems as I typed this out in a very short time.
We fill out a pre qual sheet. We do not see the credit report, he tells us about the credit.Yes it does cost my broker a little, but he knows he has the deal. One of the first things we were told to do was find a mort. broker. We looked forsomeone who specialized in the bad and rough credit. FICA 500+ If you find someone who does this, you have found your bad credit broker.
If you build a good repor with someone like this they will be glad to help. If you close 2 a month to 2 a year, how often do they get repeat business? We are better than referals. Just be honest.
Sire[ Edited by sire on Date 04/11/2003 ]
Once again, TCI saves the day - My Mortgage Broker said he would run credit reports for my prospective tenatnt buyers....at $25 a pop!!!! I knew this sounded high, so did a search on TCI, and voila - A little leverage to negotiate with my broker...or take the business elsewhere. Thanks again to everyone that takes the time to impart knowledge on these forums.