Not qualifying for a home mortgage loan, even though you may have saved enough money to make the down payment, is disappointing. It is usually very disappointing for the seller too, who may have put considerable time and effort, as well as money, into trying to make the sale. However, you and the seller could make a lease to own or lease-purchase agreement.
In a lease to own agreement, the seller agrees to offer the potential buyer an “option to purchase” the house at or before a particular chosen date. The buyer makes the down payment, and then pays rent on the property every month during the agreed-upon time period. At the end of that time, if the buyer qualifies for the mortgage loan, he can go ahead and make the purchase.
People who do not have a qualifying level of income or credit necessary to buy a house, but who expect those circumstances to change in a few years, have access to options and opportunities through a lease to own agreement that otherwise would not be open to them. This can be a way to call “dibs” on a house you love, preventing others from taking it instead while you position yourself to make the purchase.
It is possible that the circumstances of your life will not change significantly, or will worsen, between the time in which the lease to own agreement is signed and when the option to buy becomes available. Thus you lose your down payment, and your rent payments (which otherwise would have been considered equity). You walk away empty-handed, while the seller will have profited more than with a normal rental situation.
Another inherent danger is that if, during the probationary time period in which you are renting, if you deviate in any way from the agreement, such as to miss or be late on a payment, the seller can decide that the agreement has been forfeited. At that point, you lose the down payment and equity. This can also happen if the seller dies or goes bankrupt.