With cash and credit hard to get, use creative home buying methods: learn how to lease to buy a home.
What with interest rates remaining high and the economy in such a state that most folks seem to have less cash available than they did a few years back, it's becoming increasingly obvious that the American dream of owning a home is often simply a dream . . . a fantasy beyond the financial reach of a good many people.
However, there is a way to go about buying a home (and to do so without bidding farewell to every bit of your hard-earned cash) . . . using a technique known in real estate lingo as "leasing with option to purchase". It is easy enough to learn how to lease to buy a home. Put simply, the lease option enables you to move onto a piece of property and pay rent for an agreed-upon amount of time, and — during that period — to have the opportunity (but not the requirement) to buy the dwelling. If you decide that the house is just what you've been looking for, you simply exercise your option and — by doing so — form a binding contract of sale. Conversely, should you conclude that the property isn't quite up to your expectations, you can just inform the seller that you don't intend to buy . . . and thereby terminate the option agreement.
THE PROS OF A HOME LEASE OPTION
One obvious advantage of the lease-to-buy arrangement is that it gives the prospective owner the opportunity to actually live in the house in question before putting any money down. As the renter, you'll discover the quirks (if there are any) in the plumbing, electrical wiring, etc., and have time to determine whether any major renovations are needed. You'll even be able to inspect the home under various weather conditions and during different seasons.
The lease option is attractive from a financial viewpoint, too. The usual arrangement in this type of agreement, you see, is to apply a portion of each month's rent toward the down payment, making it possible for a buyer to become a landowner without having to put out as much cash at one time as would normally be required .
THE CONS OF A HOME LEASE OPTION
Unfortunately, there are usually some trade-offs that have to be made when obtaining the privilege of leasing with the option to buy. You might, for example, have to pay a slightly higher rent (say, $50 extra on a monthly fee of $250) during the option period. This additional money, however, will — in most cases — be credited toward the down payment . . . so you'll lose out only if you decide to forgo the purchase.
Depending upon your agreement, you might also find yourself paying for minor repairs on the dwelling. In most cases, of course, the landlord foots the bill for all of the maintenance . . . but you may be asked to contribute toward the upkeep of the house.
WHERE TO LOOK FOR A HOME
You can begin searching for property in your own back yard . . . literally! According to statisticians, the average landlord holds onto a house for only three years before selling it . . . so it stands to reason that if you were to offer a package of sale at an acceptable price and terms, your own rental home's proprietor might well at least be willing to listen to the proposal. And if that doesn't spark a deal, an offer to pay a higher rent during the lease period might help you capture his or her attention.
Of course, should that angle fail, you can try responding to ads in the real estate section of the local paper (you could even place an ad requesting a lease with the option to buy). Or, if there's a particular not-for-sale property that you'd like to own, find out (from the county records) who owns the spread and make an offer directly to that person. Be aware that many sellers won't be interested in the lease option (and that some real estate agents might not want to handle this type of transaction) . . . but even if you're refused by the first few homeowners or realtors you approach, keep on trying. Find out why your offer isn't accepted with enthusiasm, and perhaps make a more favorable proposal. Locating a lease-to-buy property can take quite a little time, but it's well worth the effort in the long run.
DRAWING UP THE AGREEMENT: THE HOME LEASE
As you've no doubt figured out by now, there are two parts to the typical lease with option to buy: the lease itself and the contract of sale. When preparing the former, you'll have to come to an agreement concerning the length of the lease and the amount of rent that you'll be paying. Of course, as the buyer, it's to your advantage to negotiate a fairly long term. Such an arrangement could allow you to apply several years' rent (or a portion of it) toward the down payment . . . and substantially reduce the amount of cash needed when you exercise the purchase option. (Regardless of the length of the lease, however, you will be free to buy the property before the term is up . . . should your finances improve.)
The remainder of the lease portion should contain all of the items normally covered in a standard rental agreement. You'll want to include, for example, a description of the property and the addresses of the parties involved . . . an explanation of how the maintenance, utility, and insurance costs will be paid . . . an outline of the procedure to be used to return — or not return — the security deposit . . . and remedies should either party default on his or her end of the bargain .
THE HOME LEASE OPTION TO BUY
Because a legally binding contract will go into effect when you exercise an option to buy, you'll generally want to include all the essential components of a formal sale contract in the original option agreement: As an alternative, a preliminary agreement to lease with the option to purchase can be used, containing the written understanding that more complete final documents will be drawn up prior to the date of lessee possession, and that the offer to buy is contingent upon approval-by both parties-of those documents. But even such a shortened contract should include  the purchase price and the terms of sale,  any conditions of and limitations to the title,  the contingencies of the sale, and  the apportionment of the closing costs. (Don't let the formal jargon put you off. As I'll explain below, each of those items is simply a commonsense rule designed to help safeguard your investment.)
The purchase price and terms of sale detail how much the property will cost when you exercise the option to buy and where that money will come from. You'll want to include the amount of the down payment, the percentage of rent (try for at least 25%) that'll be applied toward that cost, and an explanation of how you intend to foot the bill for the balance. Obviously, as the buyer, you're going to want the lowest possible price and the easiest terms. You might be able to convince the seller to finance the transaction so that you'll be able to swing the deal without having to go through the hassle of providing a credit history. However you do finance the sale, though, be sure to stipulate the type of loan, the amount, the payment plan, and the interest.
Clearing the title gives you assurance that the parcel is free of any outstanding debts (taxes, insurance premiums, mortgages, and such) . . . and that any limitations to the title (such as land-use restrictions) are clearly listed. Otherwise, you might well find yourself saddled with an unpaid bill after you've settled in. (Be sure, too, that the title is insured for its claims.)
Contingencies for sale include such items as any inspections you'd like done before you buy the house. You might, for example, want to have the acreage surveyed and the dwelling appraised, require a termite and structural inspection, or request soil and water testing. All of the conditions that you'd like to have met prior to taking ownership of the property should be included, in writing, in the final contract.
Closing costs involve various expenses — in addition to the purchase price — that must be settled before you secure the title. These can include the fee for recording the sale, an attorney's charges for drawing up and approving the final contract, the costs of clearing up any contingencies (such as a survey), and an escrow fee paid to a go-between who protects the interests of all parties involved in the deal. (Since you'll probably pursue the sale under your own steam, it's unlikely that you'll have a bill from a real estate agent . . . but if you do, it must also be taken care of.) Some of the payments are typically shared by the buyer and the seller, while others are usually handled by just one of the parties. In any event, make sure that the amounts of, and responsibilities for, these costs are agreed to in writing.
There you have it . . . the lowdown on how to buy a house without cashing in your entire life's savings. Who knows, once you become familiar with the legal jargon involved (and, perhaps, build up the courage to propose a deal), you could be on your way to tilling your own soil instead of your landlord's!