Mortgage to Lease Option – An Emerging Trend
Many investors, such as real estate companies and individuals, are looking to purchase discounted
foreclosures and failed government home loans. This technique seems to be helping government officials because they get to remove failed loans from their books and avoid increasing the amount of empty homes by keeping the original buyers in the house.
What does Mortgage to Lease Option Do
Investors purchase the home and keep their at-risk tenants in their homes, trying to work with them so that they can temporarily convert to renters rather than getting evicted. Even those who haven’t made mortgage payments in months can become renters of their foreclosed home and enter into a mortgage-to-lease option.
This gesture is meant to keep people in their homes rather than evicting them, an attempt to lower the
amount of abandoned, empty homes which cost a fortune in upkeep and lower neighborhood home values. Mortgage-to-lease options are also intended to stabilize housing costs, hopefully propelling the
real estate industry forward and eventually helping to raise home prices.
Is it Right For Me?
Many people now are wondering whether or not mortgage-to-lease options are truly beneficial, or if
they are just working as a bandage—a temporary fix to the real estate industry. This method is seems to
be beneficial to those who could not make their mortgage payments: rather than being forced to move
out they now have the option to rent and continue living in the homes they meant to buy. If they can
become financially stable enough within a few years, they may even be able to make deals with their
investors and buy back their homes.
However, there are still several road blocks and questions that the mortgage-to-lease option has
yet to answer. For example, if a renter does not compromise in writing on ways to price his home with
the new investor, it may become very difficult for him to negotiate on buying his home back. This is
because of how difficult it is to determine the value of a foreclosed home within a few short years. The
investor purchased the bad loan in order to turn a profit, and she does not want to undersell the home.
Other notable details include the terms of their new lease, which is determined by the investor, which
can vary greatly. For example, if the investor only gives the renter a one year lease, the renter may not
have the time he needs to get back on his feet and start making payments, meaning he will be evicted
anyway. Bank of America’s lease is typically three years, while Landsmith of San Francisco offers a six
year lease—a huge difference in time.
Renters should also find out if their rent is going to increase over the years; if new fees such as a pet
fee or a security deposit will be added; and if they can eventually enter into a rent-to-own program,
allowing some of their rent to go towards the price of their home if they choose to buy it back. Who
will be the renter’s landlord and who will pay for the upkeep and repairs? What happens if investors
sell their properties to other investors? Lastly, and arguably the most important, renters should find out
what will happen to their debt and the mortgage they still owe. If they’re expected to continue making
mortgage payments on top of rent, this may be a deal they can’t afford.
This type of program should only be used as a last resort and is not right for every situation. If you have additional questions please email us at email@example.com and we will answer your questions in a blog post or on Facebook.