Buying a rent to own home in Utah is a great way to progress towards home ownership without the initial upfront financial burden. Signing the lease to own agreement for a Salt Lake City home is only half the process.
Once you have a signed lease option contract, it can be easy to sit back and enjoy your new home. There are things that you need to be doing right now to put you in a position to complete the purchase of the lease option. Consider these suggestions.
Keep Saving for the Down Payment
A common misconception with lease options is that the rent premium will cover all of the down payment. Let’s see how it will all work out by analyzing this sample lease option:
Purchase Price: $150,000
Lease Term: 3 Years
Option Fee (2% of Price): $3,000
Market Rent (1% of Price): $1,500 a month
Rent Premium (20% of the Rent): $300.00 a month
You have put $3,000 upfront towards the down payment (called the option fee) and you will be paying $300 a month towards the down payment. After three years, you will have a total of $13,800 ((36 months x $300) + $3,000) or 9.2 percent of the lease option purchase price.
Now, at the end of the three years, you are probably going to need a mortgage to cover the rest of the lease option purchase price. A conventional loan will require that you put down 20 percent of the purchase price or $16,200.
This means that while you are paying on your rent to own Utah home, you need to also be saving as much as possible. This topic has been covered in another article “How to Find Money for the Down Payment on a Lease Option.”
Clean Up Your Credit
Another way you can make sure to close on the lease to own real estate in Utah is to have a good credit score rating. The higher your credit score, the lower your interest rate and the easier it will be to get a mortgage. You will need a minimum FICO credit score of 500 to qualify for a mortgage – but this is a bare minimum. A more realistic minimum is 580 – but this is still not very good. If you want a conventional loan with better terms, then shoot for a credit score of at least 620.
While you are in the rent to own in Utah, why not try to improve your credit score. It is worth whatever effort you put forward – but beware that paying off all your credit cards could actually hurt your credit score. Keep your eyes peeled for another article in this series, “How to Improve Your Credit Score so You Can Complete Your Lease Option Purchase.” <Insert link here.> It offers some practical advice from the experts.
Get Pre-Qualified for a Mortgage
Whatever you do, do not wait until the last couple of months to see if you can quality for a mortgage on your Salt Lake City lease option home. If you cannot pay off the purchase price, then you will lose all of the money you have spent.
One way you can make sure to qualify for a mortgage is to go and get pre-approved for one right now. Sure, you do not need a mortgage right now, but if there are issues with your credit or other qualifications you do not meet, knowing that ahead of time will give you the time to get all your ducks in a row.
During the time you are in a lease option, take the time to get yourself prepared for when you need to pay it off. The money you put in savings now; the efforts you make to improve your credit score; and the time it takes to get pre-approved will help make sure that the closing on your option agreement is a guaranteed success!
