A dear friend recently asked my opinion on leasing to own a home. Lease-to-own is a great investment strategy (for the property owner) and can, in the right situation, be a blessing to the person who is doing the leasing. If you would like to talk about using lease-options as an investement strategy, I'll be happy to walk you through it. And if you cannot qualify for a loan, I can step you through how to find a home to lease-to-own without getting taken advantage of. However, I know the person who wrote me can be a candidate for a traditional loan with very little effort. Here's what I wrote in response (for my real estate colleagues, note that I tried to keep it somewhat basic and left out some of the finer details):

Regarding leasing to own- people who lease to own typically take advantage of those who cannot qualify for a home because what you pay to lease is more than you would pay if you bought it. Nothing wrong with that (it's how a lot of investors make their money). However, having worked in real estate for awhile, I can tell you that paying the lease to own is no better with the bank than renting a house (or an apartment). This is because you don't own the house until you've paid it off- the person you're leasing it from still owns it. The difference would be if you were buying with owner financing, where the seller takes you to a title company and the title company does the paperwork so you own the house. In this case you are taking a loan from the seller. Instead of paying the bank loan, you are paying the seller a note. Again, if you go this route, unless you know the seller and he/she is doing you a favor, you probably are paying too much.

I'm curious… who told you can't qualify for a loan to buy a house if you can't prove employment for the next 1-3 years? Many people work on contracts like xxxxxxx, and very few people can prove that they'll have a job next year. Usually, the banks use past work experience to judge- not future work experience. Forgive me for jumping to conclusions, but I wonder if the person who told you that might possibly profit from you leasing a property.

You most certainly CAN buy a house (Lord willing) even if you work on contracts and not firm employments. Two things will allow you to overcome the job contract issue, as early as this time next year depending on how much you can save: 1. a sizable savings (3-10% of what the house will cost) and 2. religious on-time payment of your cell phone and utility bills. Things like electric, water, gas, and cable. Believe it or not, the banks actually use those things to qualify first time homebuyers. If you show on time payment of those bills and rent for at least 12 months, and also have a good savings then any bank will lend you.

Don't know if the place you rent pays your utilities for you, but if they do you can still build a record of paying bills on time by moving elsewhere. That could have a double bonus (if it's cheaper) if it helps you have more money to save.

You can get a nice older home around Montgomery for about 150K. 3% of this would only be $4500, so buying a home is certainly within your reach.

Hope that helps some!