Question I am often asked in how to get lease option tenant buyers qualified

Question: How can I get my better tenants qualified for a mortgage even though they have very poor credit histories for the most part? These houses are currently privately held deeds with no mortgage what-so-ever. Any assistance would be greatly appreciated.

Answer: Getting Tenant-Buyers qualified is like trying to get the mud off of pigs. It may seem like a steep hill to climb but you can do it. Tenant selection is going to be your first priority.

Select Tenant-Buyers with a consistent work history, stable family life, and some desire to improve their credit. Ask them, “What have you done in the last year to improve your credit score?” Even though they have poor credit, any action to improve it is a plus. The foundation of improving their credit score starts with a good job and consistent lifestyle.

Even though most will not have the credit to get qualified, I’ve been pleasantly surprised when some tenant were approved even though they didn’t think they could qualify. So your next action is to check their credit score. With the counsel of a Mortgage Broker, you can determine if the Tenant-Buyer has an obtainable goal within the next year.

I’m Getting a Settlement

You will find plenty of Tenant-Buyers that have reached the bottom and they are waiting on a ‘settlement’ or big payday. When that comes in they plan to just “buy the house out-right”.  Don’t expect this train to come in to the station anytime soon.

Getting a Tenant-Buyer Financed

·Screen Mortgage Brokers for one that is willing to work with people and spend the time to help them improve their credit score. Read my article on selecting a Mortgage Broker.

·Find a relative of the Tenant-Buyer with no credit to co-sign. Sometimes a son or daughter in their early twenties will still live at home and be willing to co-sign with a parent. If they have a job and haven’t established credit, your Mortgage Broker can help them get qualified. Don’t overlook extended family as well.

·Use a “Credit Repair Specialist” that claims to dramatically improve your credit score. Tread with caution.

·Use a Private Money Partner to fund the Tenant-Buyer on a 60 month note. You sign a guarantee for the loan to the Money Partner and offer management services. After a reasonable seasoning period (12 to 18 months), the Tenant-Buyer should look to refinance.

·Owner finance the property to the Tenant-Buyer at an attractive interest rate for note buyers. Once the Tenant-Buyer has established a good payment history, put the note for sale.

**Be aware most note-buyers are not acting as a principal. Most tend to be a broker in the transaction.

** When initially approached by note-buyers, they’ll throw out very attractive discount rates. Expect those rates to sour the closer you get to closing. Especially if the Tenant-Buyer has a very low credit score.

·Structure the Lease to be renewable around February and setup a down payment fund on the Tenant-Buyer. With every Income Tax Refund they receive, deposit it into the Fund until they have enough to use as a down-payment. This works great for Owner-Financing or if they’re trying to get qualified.

·Owner-Finance the homes to another Investor with the tenant in place.

With promissory notes you can get very creative and we could discuss them for pages. So invest the time to learn more about promissory notes and learn how to structure them.

These ideas should help you resolve your problem.