With the downturn in the real estate market across the United States this has become quite the hot topic for Buyers, sellers, investors, people facing foreclosure…etc. Lease Options have become increasingly popular due to financing being harder to obtain and values becoming Stagnant. This blog is just a quick insight to Lease Options, if done correctly they can be a valuable tool in purchasing real estate.

Here are a just a few reasons someone might need/want to purchase through a lease option:

• You have the income to make the payment but need some time to clean up any past credit issues
• You have the income but need some time to save up money to pay for closing costs
• You have recently changed industries in which you work (you need 2 years in the same industry to qualify for a loan)
• You have recently become self employed (again, you need 2 years of self employment to qualify)

A “Lease Option” could help you make that jump into becoming a Home Owner. A simple way to look at a lease option is as an alternative financing tool. The seller virtually acts as the lender in this situation. With financing availability getting tighter (which seems like it gets tighter everyday) being creative can keep you one step ahead. Basically a Lease Option happens when a Buyer and a Seller agree to a short term lease (typically 12-24 months) with the option to purchase the property at the end of the lease hence “Lease Option.” Having an experienced Real Estate Broker helping you with this is crucial. If done correctly you can set up the contract to be very similar to a mortgage so that each payment you make deducts from the balanced owed. You will also be paying interest to YOUR lender (the current seller) so I would recommend that you check with your CPA to see about tax deductions.

This is just like negotiating any contract and terms can vary but you will want to establish certain aspects in the contract:

• Purchase Price
• Option Payment (your down payment)
• Lease period (6 months, 12 months, 24 months…etc)
• Interest Rate
• Monthly Payment
• What portion of the payment goes to interest and principal

One thing to keep in mind is that if you DO NOT exercise your option to purchase the property at the end of the term you will typically lose your down payment and any payments that have been made towards principal. Due to these transactions being a complex nature it would always be wise to consult an attorney before entering into the agreement.

There are more to lease options, they can be a very sophisticated and complex transaction so having someone with experience is crucial. If you have any questions feel free to contact Rick Grand at 541-521-1011 or email him. Rick is a Real Estate Broker as well as a Loan Officer, he has the unique ability of having been on the lending side of a transaction as well as representing buyers. This gives him an experience and knowledge that can truly help you with a Lease Option contract.

Now that you’ve decided on a home that fits what you are looking for it is time to write an offer. “But how much do I offer?” Well in the Eugene/Springfield Oregon area there are some pockets that can differ in price so the wisest idea is for us to complete a Market Analysis for the property you have chosen. This will show us the activity for properties that are similar to the home that has been selected. This is a very important step; missing little things in an offer can really affect you after the closing. Such things as making sure that any appliances that you would like left in the home or if there are some decorative blinds you would like to be left. We’ll sit down and go over our market analysis and then determine a fair value to offer as well as figure out what items you would like to be included. This is also the time we negotiate any closing costs that we would like the seller to pay. You will want to check with your Loan Officer to get an idea of what the total closing costs will be. A successful offer will generally include a deposit which is considered your good faith to buy the home. If a home has a few offers that are being presented that are very similar then the offer with the largest deposit could be the offer that gets accepted. This amount is typically no less than $1,000 but again, your offer will look stronger with more of a deposit.

Recap:

• How much do I offer?
• We’ll prepare a current Market Analysis for the selected home
• The little things are important!
• Get an idea of the estimated closing costs from your lender
• Be prepared to make an initial deposit as good faith with your offer

What I like to call your Top 5 can vary a bit. Sometimes you might have found 7 homes that you really like and want to take closer looks at. Other times it might be obvious that there are just 2 or 3 homes that you really like. If you can eliminate homes for whatever reason don’t hesitate to do so. Trim the list as short as you can so you can focus on the ones that you are really interested in. The shortest the list the easier it will be to make a decision. This shouldn’t be a hair pulling process, you should be enjoying this so don’t make it more stressful than it needs to be. Now that you’ve trimmed that list, your agent should sit down with you so you guys can list the features of the properties that you really like; schools, amenities, bedrooms, bathrooms, RV parking…etc. Start picking out the pros and cons to each property to help you narrow it down to the final 1 or 2 homes. Now is the time you might even take a 3^rd visit to help finalize your decision. It might just come down to you feeling more comfortable in one home over another or the layout of the kitchen. Once you’ve narrowed the list down you might decide that you need to see the homes a 3^rd time. Obviously the idea is to narrow it down to just one and once you have now it is time to write an offer and to negotiate a sales price.

Recap:

• It won’t always be a “Top 5”; you can have a Top 3, Top 2, Top 7….etc

• If you can eliminate a home from the list then do it

• The shorter the list, the easier it will be to decide on a home

• Try to put together some pros and cons for each property

• Remember to HAVE FUN and enjoy this process

• Narrow down the list as much as possible

Step 2 “Discuss the Details”

Step 1 “Selecting a Realtor”

Once you have decided what you are looking for in a home and have been pre-approved for financing, by your local Mortgage Broker, it is time to start looking around to see what is available that suits your needs. There are several areas along Eugene and Springfield to choose to live. There are also many outlining cities such as Creswell, Cottage Grove, Junction City, Veneta as as others. Finding a home tends to be the most enjoyable part of the process, well, right behind getting the keys and actually moving in. Take your time, your agent won’t (at least they shouldn’t) push you into buying a home. They will point out certain aspects of a home to help you see differences in 2 homes and will help you find the one that best fits your needs. Viewing enough homes to choose one that is suitable but try to limit yourself for each day that you are looking. Limit yourself to 6-8 homes each time you are out with your agent. Remember, this is where you plan to raise your family and you want to enjoy being in the home so don’t rush it unless you find the absolutely perfect home on the first try. Be sure to bring a notepad and take down some notes on each home so you can go back home and review each home so you can start to eliminate some and start selecting homes to be in your “Top 5.” Once you have narrowed down the list of homes it is time to schedule a second appointment for each of those homes.

Recap:

• Maximize your buying power by being pre-approved for financing

• View enough homes to make an informed decision

• Take your time if you are not in a hurry; find the home that you want

• Take a note pad to write down aspects you like and don’t like for each home

• Start making your “Top 5″ homes

• Schedule appointments to have 2nd viewings for your “Top 5″

The tax man may have won this case but in the end the taxpayers won at the same time. It prompted the IRS to add literature for “personal use” that they had steered away from previously. Take note of the Moore v. Commissioner, if you have a second home that you rent out frequently you could qualify. If you have a second home that you NEVER rent out then I doubt you will qualify. As always, I am not a tax advisor nor a CPA so if you read this article and would like to explore the idea of a 1031 Tax Deferred Exchange please consult your CPA before doing so. There are guidelines and rules that a home must meet to qualify.

To read Step 1 “Select a Realtor” click the link

The agent you select should work with a couple of Loan Officers in the area of Oregon you are purchasing a home. For myself in Lane County I work with one in specific but have others that I trust and am happy to furnish their contact information if you’d like a second opinion. The Mortgage Loan Officer should come highly recommended by whoever you are working with. This person will be very important through the process. Your Loan Officer will get you a comfortable payment when the time comes for you to write an offer.

There are a lot of “online” companies that promote all sorts of programs and payments but most agents will agree that you should be referred to your Loan Officer by someone that you trust that has gone through the process or by your agent. I know, personally, that I always recommend going with someone who is local to the Eugene/Springfield area. This benefits you and your agent for multiple reasons. You’ll get to meet your Loan Officer in person and see where he works and get a chance to make sure it is a good fit. A local Loan Officer will be up to date on programs that are specific for Lane County Oregon homes. If you work with an “online” company and they aren’t answering emails or your phone call then there isn’t much you can do, if you work with someone who is local then you at least have the ability to go into their office to check in on the process.

Generally, all lending institutions will have the same programs and products for your mortgage as they are all regulated by the government. More importantly is that you are comfortable and trust your Loan Officer. This person should also be keeping in touch with you frequently to give you updates. It is important that you are also comfortable with this person as well. You, your Agent and Loan Officer will be working together for the next 30-45 days to complete the process and to get you into your home on the specified contract date.

Typically your first interaction with your Loan Officer in Oregon would have been on the phone for a quick conversation to discuss your purchase and then to set up an appointment to meet. It is best to meet with your loan officer as quickly as possible, interest rates change on a daily basis if not multiple times a day and most loan officers keep track of what is going on. They will be able to inform you of any recent changes to the market or program guidelines and help secure the best product for your needs. A good Loan Officer will sit down and explain the process to you and answer any questions that you have at the time. The idea is to get you comfortable with the process and to keep you informed so you know what to expect for the next 30-45 days. They will be verifying a lot of personal details so trust is a crucial aspect with your Loan Officer. Your selected loan officer will most likely ask you to obtain some of the documents to get you pre-approved. Being pre-approved will show sellers that you are serious and in a strong position to buy their home. This can be VERY important if you are competing with other people for a property.

RECAP:

• Be referred to a Loan Officer (by your agent or someone you trust)

• Work with someone who is LOCAL to the Eugene/Springfield or Lane County area

• Be comfortable with this person, you will giving them a lot of personal details about your current financial set up

• Set up with them to discuss the right loan program, remember to do this quickly so you don’t lose any time

• Bring all pertinent information to your meeting

• Get pre approved and get a copy of a pre-approval letter

• Go find YOUR and write an offer!

This is usually the first conversation (or at least the most important) that you and your agent will have. This is the time to discuss needs and wants, must haves and bonuses, what you can do without and can’t do without in your home. How big of a family do you have? How big do you intend for your family to be? Do you need a home office? Are you okay with sharing a single bathroom or do you want to have one in the master bedroom? Is carpet okay or do you want wood floors? What about the schools for your children, can your kids still go to the school they are at if you buy this home? With the amenities you are choosing does this fall into your price range? These are some very important questions that you need to ask yourself and discuss with your agent. A good agent will be sure to pull all necessary information from you but it is good to be prepared.

Recap:
• What are your needs in a home?
• What can you live without and what can you NOT live without?
• Are you planning for the future?
• Do you plan to stay here for an indefinite amount of time; will this home hold any future family plans?
• If you have children now will they still be able to attend the school they are in?

Recap:

* Be comfortable with the agent you choose, if you aren’t then it could be a painful process. You will also be sharing personal information about yourself with this person so trust and confidence are a big factor.
* Find a knowledgeable agent that knows the area, they will be able to handle any situations that arise.
* Find a confident agent that will get you the best deal in the area you want to live in.
* Be sure that your agent listens to what you are saying and wants to find that perfect home for you.
* Ask for references or testimonials.
* Your agent should represent you exclusively; most will use a Buyer-Broker contract of some sort.