Posted by Lisa Stohler on February 08, 2000 at 11:59:16:
I would first see if I could get the potential buyer qualified now with you holding a second against the property. If this guys problem is just a debt ratio problem then it should be easily corrected by a seller held second. This would eliminate the buyer spending all of his cash reserve on downpayment so he can pay off his debt now. And give him more motivation to refinance next year and pay you off on the second. Puts you at a lower risk with regard to debt.
I have a home I purchased to resell on a lease/option and profit $11,000. I have been having prospective buyers complete a rental application which also allows me to pull their credit report. I then have my mortgage person review their credit and other information to let me know if he could get them a loan at the end of 12 months, etc.
Well, I have one prospective buyer who has pretty bad credit, but my lender tells me he is 75% sure he can get him a loan in 12 months if he pays off several small ($75 to $300) delinquent bills, etc.
I guess my question is this; As long as I collect enough option money and enough monthly payment, how concerned should I be that he will take the responsiblity to clean up his credit to qualify in 12mos or so? I mean, I would have the option money and excess monthly cash flow to keep to protect myself. But, I just wanted to avoid someone making the mistake of entering into this agreement when in fact they may never be able to qualify for the purchase option and thus losing their option money. I want this to be a win-win situation. But how far should I go when deciding for them if they may be making a big mistake?
Should I only let a person enter into this agreement if I am 100% sure they will qualify to exercise the option? My thoughts are that I should! This way I know that I can have the balance of my profit in 12 months.