Home Buying in Atlanta>Question Details

Jennifer Har…, Renter in Atlanta, GA

Are lease to own options for buying a home a safe investment?

Asked by Jennifer Harris, Atlanta, GA Wed Jan 23, 2013

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11
Jennifer,

I would be very cautious as you search for a “lease purchase”. In over 13 years as a Realtor I have yet to see a "lease option” or “rent to own" that really makes sense or benefits a buyer.

Best regards,
Dan Simon, Realtor®
Carolina One Real Estate
Direct #843-303-1464
dsimon@carolinaone.com
http://www.CharlestonHomesForYou.com
3 votes Thank Flag Link Wed Jan 23, 2013
Not particularly. With more than 25 years of experience I've never once see a lease to own ever turn out to be anything more than a lease and if you're paying a premium lease rate or putting non refundable money down this doesn't make sense. In many instances "Lease" or "Rent" to own deals are essentially very savvy sellers taking advantage of less savvy buyers.

In my opinion, the only time a Buyer should ever consider a lease to own arrangement is when they know for certain that they have a significant sum of money coming to them (it could be from the sale of another property, an inheritance or settlement of some sort etc) in a defined period of time and that one that money arrives they will be in a position to either buy the property outright or purchase it using a conventional mortgage.

Hope this helps.
1 vote Thank Flag Link Thu Jan 24, 2013
Hi Jennifer,
I do not suggest doing lease purchases. There are simply way too many things that can go wrong with one from either side.

In order to do true owner financing, the owner must own the property free and clear of any mortgages. Very few sellers are going to be in that position.

If the property currently has a mortgage on it, the owner cannot legally transfer the title to a buyer without the mortgage first being paid in full. Most all mortgage loans have a due on sale clause. This due on sale clause requires that the mortgage be paid in full should a title transfer occur.

The buyer is also at great risk on a lease purchase transaction should the seller quit making their mortgage payments. Right now, many sellers cannot afford to make their mortgage payments or simply chose not to continue making them. I have seen where the buyer is making their rent payment, but then the owner is not paying the mortgage. The next thing the buyer knows is that the home is in foreclosure. That means the buyer will generally not get back any of the money they have given as earnest money or security deposits.

It is also a big risk on the buyer. If your credit is not where it needs to be now, there is no possible way of you knowing it will be acceptable in a set amount of time.

Before entering into any type of agreement like that, the buyer needs to make sure that they fully understand the potential pitfalls that could arise. Should the seller default on the mortgage, the buyer could lose ALL of the money that they have invested. Until you are able to purchase, renting is generally the safer option.

Working with a knowledgeable and seasoned loan officer is critical in today's market. Getting Pre-Qualified is the only way for you to find out your options to see if purchasing might be a possibility for you. To get Pre-Qualified for your purchase, you can submit your request online at http://www.rodneymason.com.

Regards,
Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
rodney.mason@prospectmtg.com
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia with over a decade of lending experience.

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle® Renovation | VA | USDA | GA Dream | Jumbo Financing.
1 vote Thank Flag Link Wed Jan 23, 2013
Lease/Option
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

There is no FORM printed by anyone; there are just too many variables.
The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!
1 vote Thank Flag Link Wed Jan 23, 2013
No. The option by far is the riskiest investment available in the marketplace and has been for years. It is cheaper and MUCH safer renting until you are able to purchase a home. I've known folks who lease-to-own and these deals are considered cash cows for their owners, for lack of better words. Good luck to you!
0 votes Thank Flag Link Thu Jan 24, 2013
Jennifer,

A lease to own agreement is neither safe, nor a good investment. Here is why.

1. While you may be faithfully making payments every month, the owner may not be paying the mortgage. You will be evicted if the lender forecloses. Not safe.
2. You will agree to a purchase price up front. When you finally get to the point of making the purchase, the home may not be worth what you agreed to pay for it. Even in an improving market, everything will be older, and closer to needing repair or replacement; and you are assuming the owner, possibly a first time landlord, will be a good landlord. Risky investment.
3. You will pay a premium for the right to purchase the home, either in higher rent or as an up front fee. Bad investment.

Read the replies below for more reasons not to do this.

Best to put yourself in a position to finance the purchase of a home from the start. To find out how, contact one of the mortgage lenders who replied below.

Best,

Dave Herren
Best Atlanta Properties
404-425-4945
0 votes Thank Flag Link Thu Jan 24, 2013
Rent to own is never (OK I will modify to rarely) ever a good idea. Im my opinion it is a marketing strategy for a seller-investor to achieve above market rent from a tennant whose credit history does not allow them to get a regular loan.

It is painful, but rent something you can afford and then put the extra money towards getting your credit straightened out. Work a second job to pay off credit card debt. You will be giving yourself a lofe long gift if you can deal with your crediit now.

Go to Clark Howards web page and get great advice about free credit couseling that is not a ripoff.
Sally English
0 votes Thank Flag Link Thu Jan 24, 2013
Jennifer,

You have chosen possibly the most risky method of purchasing a home. For all the reasons listed in previous answers and more. You need to consider buying the home outright rather than to risk losing both the house and the money you have already invested. You are aware that a Lease purchase usually requires that you pay for the option to buy the property. That deposit may or may not be applied to your down payment should you exercise the option. You need to consider that, along with the possibility that, if the home has a mortgage, the owner may default, that you may not be in a possition to exercise the option at the end of the lease.

If it is that your Credit Score is too low to qualify for Conventional Financing, I would suggest that you contact a direct Private Lender. Due to the fact that Lease Options are rather rare on desirable property, your prospects are going to be limited. If your Credit Score is low, you will have trouble convincing a home owner to give you a Lease Option for fear that you will not keep the rent current and not be able to exercise the Option when the time comes which will further limit you choices..

Your question does not include information as to why you selected to chose a Lease Option as a method of buying a home. Thus one would have to assume that it is either a Credit problem or a lack of down payment. A Private lender will require a significant down payment and a higher Interest rate than Conventional Lenders but will concentrate on you income and ability to pay the loan and the Value of the property. The insist on enough equity in the property that should you default, they will be able to recoup their investment.

Since so many pieces of the puzzle are missing, may I suggest that you contact a Private Lender that I have worked with over time and found to be very reasonable. Their contact information is:

The Westmoore Group, LLC
http://www.westmooregroup.com
Ph: (646) 801-6190
Fx: (646) 619-4291
The Westmoore Group, LLC is a licensed lender in the State of Georgia and operates under the license #30544

They are licensed Home Mortgage Lenders in the State of Georgia and would be glad to discuss your complete situation with and be of help in whatever way they can to get you financed.

Good Luck !
0 votes Thank Flag Link Wed Jan 23, 2013
Thanks for the info everyone! I'm currently renting and have seen lease to own on several listings and was curious regarding if it was a good option.
0 votes Thank Flag Link Wed Jan 23, 2013
Why not buy instead of lease to own? Is your credit real bad? That's not a problem for me. Do you have little saved? That's not a problem either. Is your income not quite where it needs to be according to the guidelines of a bank? I might be able to get around that. Have you defaulted on paying rent? Then no one can help. Even a lease purchase seller will not rent to anyone that can't pay rent.

I have a private investor who can finance your home regardless of credit. The issue that most people with bad credit face is they have limited funds. Making one or two bad finance decisions can throw a lot of people on a fixed hourly income into a tail spin. Upon obtaining financing, we will work with you in getting you a budget in place that makes the home affordable, coach you on credit issues so that you can get a better rate after one year of on time payments.

A Realtor will need to help you find a property at 70 cents on the dollar. So, if the property is worth $130,000 and the sales price is $90,000 then the difference becomes your down payment. There are fees up front and on the tail end. The at closing fees can be financed into the loan. Rates start at 9.5%. Minimum loan amount is $90,000.

The minimum used to be $60,000. I had to increase it because more and more banks won't lend less than $80,000 today. Who knows what it will be a year from now. I'd rather have you borrow enough that gives you options to refinance out when that time comes rather than having to find a bank that lends less than $90,000. Getting this loan is easy. Getting out is hard. We have to make sure that all your finances are in good order to move ahead.

If for some reason however I see that you are very close to getting financing for FHA, then I will help you for free in getting your finances and credit in order so that you can buy a house at a better rate. I've been lending for over 15 years now and I've learned that educating people on how to close a loan is more important than closing a loan.
0 votes Thank Flag Link Wed Jan 23, 2013
Seldom, while others will chime in here about their success stories, these are difficult to bring to fruition.

Writing a contract for a lease to own requires special knowledge and care. If the home has a mortgage, how will you insure the owner is paying the mortgage? If there is no mortgage how much of your rent is going to be applied to your purchase and what happens to the money should you be unable to complete the purchase? How will you ensure that you will not lose it all if you miss a payment or are late? Who maintains the home while you are leasing? What if the roof starts to leak? What will the final purchase price be?

Rather than a lease to own, you should try to arrange a seller financed purchase. This way you actually purchase the home but pay it off via a seller financed mortgage. Arrangements can be made with an escrow company accept payments from you or and pay the seller their portion. Never pay the landlord directly.
0 votes Thank Flag Link Wed Jan 23, 2013
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