Recently I listed some townhomes. I had to contact the tenants to advise them that the owner was putting them on the market. I advised the tenants that they could make an offer to purchase the units they were currently renting. I received several responses ranging from “I never thought about buying, but I like the unit” to “how can I do that, I don’t have any money” to the most frequent one I hear, “my credit is bad due to —- (divorce, job loss, health issue etc.).” Realtors deal with these issues frequently and can show you many ways to purchase your rental unit. Below are some guidelines to help you on your path to home ownership.
BENEFITS OF OWNING:
Let’s say you are renting a house for $800 a month, but it is listed for $100,000. If you purchase this house, financing $100,000 for 30 years at 5%, then your principal and interest payment would be approximately $536.82. Taxes (after filing for Homestead Exemption)
would be around $90 monthly, and estimated insurance would be around $70, for an estimated total payment of $696.82, which is $103.18 LESS than your rent. You now own your own home, and you can deduct the interest of roughly $5,000 and the taxes of $1,080 for a total $6,080 off your gross income if you itemize on your income tax return.
ENGAGE A PROFESSIONAL REALTOR TO NEGOTIATE WITH THE OWNER.
This is the mandatory first step. The Realtor will locate the owner and mediate the sale of the unit. If the owner is looking to sell, your Realtor will work with both you and the seller to determine fair market value of the property and negotiate the sale.
PREQUALIFY WITH A LENDER
This is the mandatory second step. Your Realtor can help you contact a reputable lender to help determine your buying power. This, in essence, gives you a “bag of money.” Most sellers will not consider an offer without a prequalification letter. The prequalifying can easily be done over the phone.
FIRST TIME HOMEBUYER WITH GOOD CREDIT AND EMPLOYMENT – NO CASH.
If you are a first time home buyer with acceptable credit and income, there are a number of programs that assist first time homebuyers by providing grants to cover down payment and/or closing costs. There are normally restrictions on these programs such as a requirement to own and occupy the property for a set length of time, or income limits.
REPEAT HOMEBUYER WITH GOOD CREDIT AND EMPLOYMENT-NO CASH.
If you are renting a unit and are considering buying it, and have good credit and employment and no cash, there are several avenues available to you.
- Have your Realtor contact the owner to see if he is willing to do a lease-purchase. He may be willing to execute a contract with you to lease the property for a certain time, such as 6 months to a year, and allow a portion of your rent to be credited to your down payment when you close.
- If you have been renting for 6 months or more, your Realtor may be able to negotiate crediting past rents toward a deposit or down payment.
FAIR CREDIT, GOOD EMPLOYMENT AND NO CASH
This is similar to the paragraphs above. The solution here is that you arrange a lease-purchase contract with the owner for whatever time it will take you to clear up your credit by bringing debts current and paying off any excess debt. The lender you prequalify with will tell you what it will take to improve your credit to an acceptable level. By following guidance from your trusted Realtor and lender, you can afford yourself the opportunity to purchase a home.
If you have considered purchasing and need a trusted Tallahassee Realtor, call Jay Novak.
Jay Novak(850) 386-2001
