I’m no pro but ANYONE can turn there credit around in 12 months!
No one can turn their credit around just by
making timely payments for a year on their lease.
The idea is for them to make timely payments on
ALL their bills. You are giving them a reason to
clear up that credit. REASONS BEING:
1.That higher than normal rent would most likely
get a lowered if they get their mess together and
execise that option.
2.The Option Consideration; wouldn’t you try to get
your finances together if you risked losing this?
3.This should be the back end profits but hey, to each his own.
I’ve been under the impression that investors want to do lease options for three main reasons…
To command a monthly payment higher than what one can expect for rents.
To put a chunk of money in your pocket (consideration)
To put the party leasing the home in a position where they feel it’s in their best interest to purchase it down the road.
I’ve also been under the assumption that the party who leases the home is most likely one who has a few glitches on their credit and perhaps can’t qualify for a loan. By leasing the home and making regular and timely payments they have a chance to ‘clean up’ their credit a bit and be able to qualify for a loan after a year or so.
Today I discussed this with a mortgage broker and he stated that a party with dinged up credit will not improve their credit score any by making timely payments for a year on their lease. He said you as the landlord could ‘help’ a case that has borderline credit by writing a letter stating the party has been making timely payments, but it would only help a slight bit, but most likely wouldn’t be enough to help someone with moderate to bad credit.
Obviously, my understanding isn’t correct here somewhere, because it appears many of you pro’s are putting L/O’s together and stating it is truly win-win, and helping people with bad credit…so where am I wrong? Can someone straighten this lost soul out? Thanks.
Posted by JohnBoy on January 23, 2002 at 19:33:57:
I think it may be a good idea to also find another mortgage broker. You need a GOOD one that knows his/her business well. This one doesn’t seem to fit the bill based on what you have said.
The lender isn’t just going to except a letter from the landlord like you broker has stated. The lender is going to require PROOF that the payments have been made on time. A letter from a landlord trying to sell his property isn’t proof of anything. The landlord could say anything to help the tenant get a loan just to get the property sold! The lender is going to want to see cancelled checks and/or bank statements for each month to verify the payments have, in fact, been paid on time each month. They usually won’t even ask for a letter from the landlord since that carries no weight!
The tenant/buyer is also going to have to pay ALL their bills on time during this period. Any unpaid collections will need to be cleared up. Utility bills will need to be paid on time since most report to the credit bureaus now. They can also be used as another credit reference by getting a letter from the utility companies that they have paid their bills on time.
It’s not just based on paying their lease payments on time. It’s based on paying EVERYTHING on time and cleaning up any negative credit they already have.
A GOOD mortgage broker will know this stuff and they will be able to tell you everything the tenant needs to do in getting their credit cleaned up within a year or two. So find yourself a GOOD mortgage broker to work with that has experience in working with people like this.
Posted by Drew_NC on January 23, 2002 at 19:02:40:
Gary, even the worst credit can be repaired in 2 years at the most. It involves:
Making all payments on time from now on.
Reviewing credit reports and demanding incorrect information be removed.
Contacting creditors and negotiating for either the removal of correct adverse information or changing the entry to ‘open account’ (which is neutral).
I am currently badgering BellSouth and the 3 credit agencies to remove an account on my report that someone fraudulently opened in my name with my SSN. It sucks, but persistence will get it off there.