This is the next in a series of articles that started with “How to Complete the Purchase of a Lease Option”. Finding the perfect rent to own home in Salt Lake City and then getting it under a lease option agreement is only half of the process. We want to make sure that when the time comes, you will be able to close on the lease option purchase. One item that is high on the preparation list is making sure that you will have enough of a down payment to get a mortgage. This article will share with you how to find money for the down payment on your Salt Lake City lease option.
How much of a Down Payment will I Need to Pay off the Lease Option?
The answer to that question will depend a lot on what type of loan you intend to get. In the first article in this series, we advised readers to get pre-qualified for a mortgage. Based on your credit score, payment history and other financial factors, your lender will give you a ballpark idea of how much money they are willing to lend. The difference between the lease option purchase price and the loan amount is your down payment. You may want to check out the article, “How to Choose a Mortgage so You can Complete Your Lease Option Purchase” to see some of the mortgage options that are out there.
The Lease Option Fee that you paid at signing and a portion of your monthly payment will also be applied to the down payment on your rent to own Utah home. While this is a great way to save, however, it will probably not equal the total down payment you will need.
How to Save for the Rent to Own Down Payment
Saving 20% of the purchase price to use as a down payment is perhaps the largest challenging facing first time homeowners. Here are some suggestions that may help with that.
Choose Automatic Deposit
If you don’t see it, you won’t spend it. Why not have your employer withdraw a portion of your paycheck and automatically deposit it in a savings account for you. You may be surprised to find out that you can live without that $50 or $100 each pay period.
Make Extra Payments
The more you pay on the rent premium, the higher the down payment will be the end of the end of the lease option. If you make an extra payment (i.e. use your tax refund), however, make sure that you get a dated and signed receipt from the seller and keep a log book of all the extra payments.
Use Your Retirement Account for a Lease to Own Down Payment
Did you know that the government will allow you and your spouse to each use up to $10,000 from your IRA as a down payment? This is a provision is available to anyone who did not own a principal residence during the last two years. You can also borrow money that is held in your 401(k) account to use as a down payment, but you will have to set up a re-payment plan.
Get a Down Payment Donation
Money to pay the down payment on a mortgage so you complete the purchase of your Salt Lake City rent to own house does not have to come out of your own pocket it can be a gift from great aunt Mildred or mom and dad. Your lender is going to want to make sure it is not a loan, so you will need the donor to write a letter to your lender stating it is a gift and not a loan.
Planning is the key to successfully closing on your Salt Lake City lease option house. Keep saving for that down payment so that you will be able to get the best possible mortgage terms and the lowest interest rates.