Buying a Home With a Bad Credit Rating

Do you have spotty or bad credit? Are you bankrupt?

The good news if this affects you and your family is that Rent to Buy systems enable you to be able to enter into a home purchase while waiting for your credit to repair or for your bankruptcy term to expire.

The Rent to Buy deal type that suits people with bad credit or bankruptcy is called a Lease with the Option to Purchase. In this deal type, the property title does not change over into the new buyers name until  the end of the term, which usually goes for between 2 to 7 years (sometimes longer), depending on the time needed to have your credit report cleared of all marks, to enable you to obtain bank finance. This is the only Rent to Buy deal type that suits someone who is bankrupt.

A Lease with the Option to Purchase sets a house purchase up, locking the price in today's market and securing you in as the buyer. A Lease with the Option to Purchase is the only Rent to Buy deal type where Contracts do not exchange at the beginning of the term. The Call Option Deed is exchanged at the beginning of the term and is valid for a set period of time (known as the term) which usually is between 2 to 7 years. There are a few attachments to the Call Option deed which make the deed work. The attachments are an Exercise of Option to Purchase, Nomination of Assignee and a Contract for Sale of Land.

The Call Option Deed is exchanged at the beginning of the term for as little as $10. Some amount of money must be exchanged to set the deal in motion. No large deposit or bond is required to enter into a Lease with the Option to Purchase. Whatever money is exchanged at the beginning of a Lease with the Option to Purchase comes off the purchase price.

In a traditional house sale, the property settles between 4 to 6 weeks after exchange, whenever the new buyers finance goes through from their lender.

In a Lease with the Option to Purchase, settlement does not occur until the new Rent to Buy buyer's decides to either exercise their right to purchase or assign the option to a nominated third party (usually for a higher price). This would normally happen when the buyer's credit rating is clear, enabling them to obtain bank finance for the property. This usually takes between 2 to 7 years, (but can in rare occasions go for as long as 30 years). The length of the term, plus all other agreed upon terms are documented in full in the Call Option deed, along with the purchase price.

Time becomes the new home buyers friend, working for them, as the house price is locked in at the beginning of the term and cannot be changed. The capital growth that builds up in the property over this time becomes the new buyers reward, enabling this to be used as his/her deposit when the time comes to obtain bank finance and settle.

Another Rent to Buy system that is very similar to the above that enables someone with bad credit (though not bankrupt) to enter into a home ownership deal is called a Wrap.  The main difference between a Lease with the Option to Purchase and a Wrap is that in a Wrap the buyer must purchase the property at the end of the term. In a Lease with the Option to Purchase the buyer can walk away from the deal at the end of the term and not purchase if he/she so chooses. In a Wrap, the buyer is legally locked in to purchase the property at the end of the term.

Another difference between a Lease with the Option to Purchase and a Wrap is that a Wrap usually requires a much larger deposit than a Lease with the Option to Purchase. A Wrap would normally require the First Home Owners Grant to be used as a deposit as well as a few thousand dollars that the buyer brings directly to the table. Contracts are exchanged in a Wrap at the beginning of the deal. In a Lease with the Option to Purchase, the Call Option deed (not Contract) is exchanged for as little as $10.00 deposit.

In both of the above deals, the seller cannot sell the property onto anyone else other than the Rent to Buy buyer. Both deal types are legally binding, but the Lease with the Option to Purchase provides the freedom for the Rent to Buy buyer to walk away at the end of the term if he /she finds the property or area not to their liking, or their situation changes, (say the buyer lost their job and can no longer afford the repayments), whereas a Wrap locks the buyer and the seller in straight away for the purchase to go through to the very end, no matter what. 

Both of these Rent to Buy deal types solve situations and bring answers to both sellers and buyers. If you have bad or spotty credit that is preventing you from obtaining a bank loan to purchase your own home, these Rent to Buy deal types open the door of opportunity.

Our DIY Rent to Buy manual covers in full detail these Rent to Buy deal types. The steps involved to implement these type of house purchases are also included, along with examples of real life deals that have been successfully implemented. Information on protecting yourself and the worst case scenarios are also included.