The Washington Post explains:

“The major force behind assumptions is the ability of buyers to get financing at an interest rate lower than that currently charged by lenders. If the home seller has a mortgage with a rate below the market rate, having the buyer assume the seller’s loan can be better for both. The buyer enjoys a lower rate and avoids the settlement costs on a new mortgage.”

FHA mortgages are just about the only type of home loans that are assumable these days. They also offer lower interest rates and more generous qualifying requirements than conventional loans.

See Also:

FHA Mortgage Guide

A few years ago, I spoke with a man who made a living with lease to own properties. Basically, the process went like this: he bought a run-down property at a low price and fixed it up. He then advertised it as lease to own, in order to attract families who dreamed of home ownership but couldn’t quite make the cut. Upfront, they paid him an “option fee” that would be credited to the sale price. Each month they paid him him rent + an extra amount towards the purchase price.

Generally, at the end of the term, the people living in the home were unable to purchase it. So, the seller made out way better than a traditional landlord dealing with renters. In addition to rent, he got to keep all the money they gave him in fees towards the purchase price. As a part of pretty much any lease to own deals, these monthly payments are never refunded if the person living in the home does not buy the property by the specified date.

The biggest downfall of lease to own programs is that, unlike straight forward sales, the money you put towards the house may be going to nothing.

In the cases where buyers are satisfied with these deals, they usually do the following:

1. They know exactly why they cannot qualify for a traditional loan and work on fixing that problem as soon as possible (i.e. they pay off the balances on their credit cards in order to increase their FICO score).

2. They work with a landlord who is basically honest and offers them relatively generous terms (i.e. only a small monthly fee to be applied towards the principle, enough time to fix their qualifying problems).

3. They buy the house when time is up. Obviously this is the single most important denominator.

If all three don’t occur, you’re much better off renting. Pay less each month and save the extra money in the bank until you can take out a regular loan.

Alternatively, you could enter into another, more straightforward, type of seller financing that limits your risk of losing the property and your money. Many homeowners are so desperate to sell right now they are willing to offer seller financing with little / no down payment. In some cases, you may be able to just take over their monthly mortgage bills.

Here are a few of the most common types of seller financing:

Assumable Mortgages

Wraparound Mortgages

Seller Carry Back Mortgages

Private Party Mortgages