Here is the final part of selling by lease purchase, in a credit crunched market.

• Qualify your applicant.  Not every good candidate will be able to give 5 to 10% cash.  You can lower this amount, or ask if they are able to pay an additional amount besides the required monthly amount.  The "rule of thumb" for affordability of monthly payments is that their net income is three times the amount of the payment.  It is a good idea to get them in touch with a mortgage broker to check their qualifications, and work with them to help them be able to qualify for a mortgage by the time the option agreement is up. Have the potential buyer provide a current three bureau report with credit score.  This can be obtained on line.  Their credit or length of time on the job, or debt ratio may not be good enough to obtain credit now, but will be later.

• After you have a qualified applicant, the lease agreement should be drawn up, and signed.  This agreement will spell out the terms of the agreement.

          a.  Length of time:  Is one year enough or should the lease be for 18 months, or  2 years?
          b.  Potential homeowners allowed to decorate, or not, upkeep and repairs terms, permission to make                                 improvements, or not, are pets allowed, pet deposit?
          c.  Make sure the tenant/buyers know the homeowner's association, or condominium rules.
          d.  Detail the finances of the contract, and the non-refundable option money,
          e.  Stipulate how it will be handled if the contract details are not followed, or if there are late payments.

• Sign a Rental Agreement.  During the time the potential buyer is occupying the house, they are actually renters with an option paid and an agreement signed to purchase.  If it would be necessary to evict the tenants you would follow the landlord/tenant laws of your state to evict them and the rental agreement would be the only document used. 
  

• Make sure all parties understand and feel comfortable with the agreement, and give the opportunity to have the contract reviewed by an attorney.  Because a deed and mortgage are not involved at this time, it is not usually necessary to finalize the transaction at an attorney's office.  But, be sure you get it notarized.

• When the tenant buyer is ready to buy, you contact a closing attorney, and draw up a purchase and sale agreement, giving the proper credits for money given, and what closing costs are paid by each party.  this is closed just like any typical closing.  You have your equity, and the mortgage is paid off and out of your name.

     If the tenant/buyer does not buy, you can decide to extend their option time.  It is reasonable to require additional option payment, additional amount of monthly payment, or less monthly credit.  If the tenant/buyer does not intend to buy, they would move out, and you could choose to sell the home, or lease option it again to a new tenant/buyer.  Therefore if it is lease optioned to a new tenant/buyer, you would again collect a non refundable option payment.

     Selling your home by a lease purchase agreement if a good option if you need relief from the payments, but don't need your equity right away, or have very little equity.

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For part 1 of this article see Lease Purchase: Another Key To Selling Real Estate In A Credit Crunched Market