purchasing a home using agreement of sale

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Submitted by lfterrell on October 8, 2010 - 2:04am

We would like to purchase a home in San Diego using the Agreement of Sale method. We know our credit rating is not the best, but we do have good income, very little debt and some money $20,000 that can be used towards down payment. We obviously are not looking for a mansion, but would like something 2-3 bedrooms under $500,000. How prevalent are agreement of sale contracts in San Diego?

Submitted by DataAgent on October 8, 2010 - 7:36am.

Agreement of sale contract?

Submitted by fun4vnay2 on October 8, 2010 - 8:31am.

never heard about agreement of sale, what is this ?

Submitted by lfterrell on October 8, 2010 - 9:29am.

dd123 wrote:
never heard about agreement of sale, what is this ?

An Agreement of Sale is a contract between buyer and seller and does not involve the traditional mortgage lender. There are two closings, one when you initially put money down; you take possession of the property and make monthly payments, usually to a third party. The second closing happens three or four years later when you pay of the mortgage, usually through obtaining a loan via refinance. At that time you get title.
The benefit to the buyer is that if they cannot get a traditional loan, but hav income and a down then they can get into a home. The benefit for the seller is that this does not require an appraisal, if for any reason the buyer defaults, the home and all the money paid in remains with the seller. The retains title until the loan is paid off.
This is great for both parties, and if the seller was going to rent out the property anyway, then he can get a little more money up front and perhaps sell closer to the desired price.

Submitted by fun4vnay2 on October 8, 2010 - 9:31am.

Thanks
It makes sense now.

Submitted by FormerSanDiegan on October 8, 2010 - 10:03am.

Sounds like a variant on rent-to-own or lease-option.

If there is not a significant premium over renting (including all non-refundable deposits and monthly payments) then it might make sense as a buyer.

But, it all depends on the specifics of the deal.

I think most sellers in these deal command a significant premium over market rent, and often make the most profit when the buyer does not follow through.

Submitted by DataAgent on October 8, 2010 - 10:27am.

I think the more common term is a 'land contract' or 'installment sale':
http://en.wikipedia.org/wiki/Land_contract

Very risky for the buyer. If the seller quits paying the property taxes or their mortgage, the buyer is screwed.

Submitted by UCGal on October 9, 2010 - 11:28am.

Not to nitpick - but your downpayment is only 4% of your proposed purchase price... that's in the same ballpark as FHA's low down programs...

Personally, I'd keep renting, working on your credit rating and saving your pennies to increase your down. I know I sound judgemental but with such a small down and admissions of poor credit rating, I don't think you're ready to buy.

Submitted by lfterrell on October 9, 2010 - 5:22pm.

Bristol Chicken wrote:
UCGal wrote:
Not to nitpick - but your downpayment is only 4% of your proposed purchase price... that's in the same ballpark as FHA's low down programs...

Personally, I'd keep renting, working on your credit rating and saving your pennies to increase your down. I know I sound judgemental but with such a small down and admissions of poor credit rating, I don't think you're ready to buy.

Ready to buy? Please do not discourage these people. We need all the help we can get. Must keep the credit / real estate ponzi moving towards the peak of the triangle. If the peak is not supported the sides will collapse. If the sides collapse the base will be covered in rubble. If the base is covered in rubble we can't have growth. Who will clear all the rubble? Our childrens children? The democrats? The republicans? Of course not. Only Ronald Regan could solve this problem and he's dead. (Chuck Norris could fix it but doesn't have the time).

Unbridled speculation, greed, no morals, no stigma now for bad decisions. Bankruptcy, foreclosure are taught and accepted as financial planning. Entitlement society, something for nothing with the uncle to back you up if things go wrong. This is our housing market. Accept it and support it.

Yes, these people are ready to buy. And we are collectively ready to sell to them. (besides I may want to buy their house with cash at 20-30% off in a couple of years when vacant)

How interesting without knowing much, only that I've saved some money and admitted my credit score is not where I want it (685 average) you've gone on this rant.
I'm sure it made you feel better, but the bile you keep inside will eventually eat you alive.

Actually we own a home in Austin, TX but need it to gain more before we can sell and would like to buy, if possible, once we relocate to San Diego vice renting four to five years.

Submitted by UCGal on October 10, 2010 - 2:40pm.

lfterrell wrote:
How interesting without knowing much, only that I've saved some money and admitted my credit score is not where I want it (685 average) you've gone on this rant.

I used information you provided in the OP.
lfterrell wrote:
We would like to purchase a home in San Diego using the Agreement of Sale method. We know our credit rating is not the best, but we do have good income, very little debt and some money $20,000 that can be used towards down payment. We obviously are not looking for a mansion, but would like something 2-3 bedrooms under $500,000. How prevalent are agreement of sale contracts in San Diego?

You mentioned your credit score was an issue. I did not pull that out of thin air. You mention you have $20k to put down on a $500k purchase - I did not pull that out of thin air.

I stated my opinion that it would be better to take some time to concurrantly work on your credit score and save more down payment. I'm sorry you were offended by that.

Submitted by faterikcartman on October 10, 2010 - 3:07pm.

Bristol Chicken wrote:
UCGal wrote:
Not to nitpick - but your downpayment is only 4% of your proposed purchase price... that's in the same ballpark as FHA's low down programs...

Personally, I'd keep renting, working on your credit rating and saving your pennies to increase your down. I know I sound judgemental but with such a small down and admissions of poor credit rating, I don't think you're ready to buy.

Ready to buy? Please do not discourage these people. We need all the help we can get. Must keep the credit / real estate ponzi moving towards the peak of the triangle. If the peak is not supported the sides will collapse. If the sides collapse the base will be covered in rubble. If the base is covered in rubble we can't have growth. Who will clear all the rubble? Our childrens children? The democrats? The republicans? Of course not. Only Ronald Regan could solve this problem and he's dead. (Chuck Norris could fix it but doesn't have the time).

Unbridled speculation, greed, no morals, no stigma now for bad decisions. Bankruptcy, foreclosure are taught and accepted as financial planning. Entitlement society, something for nothing with the uncle to back you up if things go wrong. This is our housing market. Accept it and support it.

Yes, these people are ready to buy. And we are collectively ready to sell to them. (besides I may want to buy their house with cash at 20-30% off in a couple of years when vacant)

Your post had me grinning from start to finish.

Submitted by lfterrell on October 10, 2010 - 7:25pm.

UCGal wrote:
lfterrell wrote:
How interesting without knowing much, only that I've saved some money and admitted my credit score is not where I want it (685 average) you've gone on this rant.

I used information you provided in the OP.
lfterrell wrote:
We would like to purchase a home in San Diego using the Agreement of Sale method. We know our credit rating is not the best, but we do have good income, very little debt and some money $20,000 that can be used towards down payment. We obviously are not looking for a mansion, but would like something 2-3 bedrooms under $500,000. How prevalent are agreement of sale contracts in San Diego?

Actually I was addressing, what I took as very "Snarky" comments from Bristol Chicken, not UCGal. I too agree that we need to improve our credit score, which we are doing and have more funds for down, which we are working towards. I was not too keen on renting any longer and knew about the Agreement of Sale route. Its a legitimate means for those of us who have challenges such as another home that still needs to appreciate in order to sell.
The reason I initially asked the question, was to see if others knew of this type of contract being used in California.

You mentioned your credit score was an issue. I did not pull that out of thin air. You mention you have $20k to put down on a $500k purchase - I did not pull that out of thin air.

I agree I did bring up my score and money on hand - again, I was really addressing the other comments.

I stated my opinion that it would be better to take some time to concurrantly work on your credit score and save more down payment. I'm sorry you were offended by that.

Everyone is entitled to their opinion, and that was the reason I posted; where I disagree is when folks with no real valuable information involve themselves and don't really add to the discourse other than hijack the thread towards venting about their personal "bugaboos."

I appreciate your original suggestion - Thanks!

Submitted by urbanrealtor on October 11, 2010 - 1:10pm.

There are a lot of names for this type of transaction.
The most accurate (imo) is rent-to-own.

The buyer does not own the property until he pays up fully.

The issue, of course, being that certain types of title changes have precedence and wipe out the rto contract (along with the down and all payments previously made).

To protect yourself you would want language clarifying what happens in the case of mortgagor distress (though that would still be very thin protection at best).

Better would be a very specific type of trust deed against some other collateral this seller has that only kicks in if your rto interest is compromised or eliminated.

The price point for that type of property varies wildly depending upon which areas you like.

These contracts are pretty rare in SD (or any place with lots of foreclosures).

You also want to clarify what happens if you move prior to the transfer of title.

The outline you have given really sounds more like a lease with a $20000 option to buy.

Submitted by urbanrealtor on October 11, 2010 - 3:37pm.

And honestly I think that 20k is too high for a purchase option for the kind of product you intend to buy.

My 2bits.

Submitted by DWCAP on October 11, 2010 - 4:47pm.

Here is the real red flag for me, even more so than the 'need imporovement' credit (685) or the low down:
You dont live here yet, and own a house somewhere else?

This should have been disclosed in the OP, because it is a huge fact to me. San Diego is a VERY diverse city, and I would advise ANYONE moving here for the first time to rent. I dont care if you are Bill Freakin Gates, RENT YOUR FIRST HOUSE. You will not know where you want to be, and what kind of lifestyle you want/can afford until you are here. The housing, the noise, the weather, the people, the social scene, the activites, they are all so different.

Find what you want, then optimize it to what you can afford, and live the happy median. SD housing prices are stagnant or falling currently, interest rates are low, and going down. Rents are not skyrocketing. There is no possible reason you NEED to buy a house, in a city you dont currently live in, in the next 6-12 months. (unless someone else is paying the tab for you, which again is a fact needed in the OP)

Submitted by lfterrell on October 11, 2010 - 5:51pm.

DWCAP wrote:
Here is the real red flag for me, even more so than the 'need imporovement' credit (685) or the low down:
You dont live here yet, and own a house somewhere else?

This should have been disclosed in the OP, because it is a huge fact to me. San Diego is a VERY diverse city, and I would advise ANYONE moving here for the first time to rent. I dont care if you are Bill Freakin Gates, RENT YOUR FIRST HOUSE. You will not know where you want to be, and what kind of lifestyle you want/can afford until you are here. The housing, the noise, the weather, the people,
the social scene, the activites, they are all so different.

Find what you want, then optimize it to what you can afford, and live the happy median. SD housing prices are stagnant or falling currently, interest rates are low, and going down. Rents are not skyrocketing. There is no possible reason you NEED to buy a house, in a city you dont currently live in, in the next 6-12 months. (unless someone else is paying the tab for you, which again is a fact needed in the OP)

Yes, the closer we get to moving we are leaning towards renting for up to a year. Our home in Austin is holding steady and maybe even moving up slightly
I appreciate all of the constructive comments.

Submitted by bearishgurl on October 11, 2010 - 10:31pm.

DWCAP wrote:
. . . San Diego is a VERY diverse city, and I would advise ANYONE moving here for the first time to rent. I dont care if you are Bill Freakin Gates, RENT YOUR FIRST HOUSE. You will not know where you want to be, and what kind of lifestyle you want/can afford until you are here. The housing, the noise, the weather, the people, the social scene, the activites, they are all so different.

Find what you want, then optimize it to what you can afford, and live the happy median. SD housing prices are stagnant or falling currently, interest rates are low, and going down. Rents are not skyrocketing. There is no possible reason you NEED to buy a house, in a city you dont currently live in, in the next 6-12 months. (unless someone else is paying the tab for you, which again is a fact needed in the OP)

DWCAP, this was very good advice to this new Pigg who currently resides in the state of TX. Newcomers to SD from locales such as TX and any other parts of the country where the average SFR lot is 10,000+ sf are SHOCKED at the density they must acclimate themselves to here due to price constraints. In addition, there are other conditions that they must accept if they choose to live here that are MUCH LESSER or NONEXISTENT issues where they have been used to living.

As an example, I have observed many, many incoming military families who would be PROVIDED "FREE" housing in SD County or a stepped-up housing allowance to find housing here who INSTEAD opt to remain in their former locale (with a much lesser housing allowance) rather than adapt to the "lifestyle" they would be subjected to by moving here with their sponsor, ESPECIALLY if the sponsor is subject to deployment soon after settling in. So what typically happens is the sponsor comes to SD on 1-2 year unaccompanied orders and is provided a shared living unit on base or quarters on shipboard and travels to see their family whenever they can.

I'm not trying to put down SD County here but just saying it's not for every young family who is accustomed to a different life than we have here with perhaps more discretionary income, space to park 2 or more vehicles, etc.

Submitted by lfterrell on October 12, 2010 - 1:41am.

Mahalo to all of providing such great advice. I must apologize because I was attempting to be brief and to the point, I see that I've obviously left out important information. My husband and I are retired military ; we currently reside in Hawaii, although my husband is currently a contractor in Iraq. We were previously in Austin, where we purchased a beautiful home and we are renting it out.
We would like to return to the Mainland, preferably San Diego or San Francisco. By the time we plan on moving in June 2011,we hope to have quite a bit more than the $20K; plus we'll have little to no debt.
My initial thought was to not rent per say, but do some sort of lease with option to buy.
Because I'm a Cal Vet, I could go that route, but with my FICO below 700, I'm concerned about getting a loan.
We will continue to research the areas, to see where we can relo in the most cost beneficial way to the family.
Again many Thanks for all the good info.

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