Try looking at it this way - there are several reasons why a lease-to-own situation is actually better for the seller. If the seller is selling because they need cash now, you are probably out of luck.
But...
If the seller is selling because he's had a string of bad tenants, you could be the model tenant who doesn't cause problems.
If the seller has a monthly cash flow problem with the property, your combination rent/down payment check could solve that problem
If the seller doesn't need a lump of cash now, he/she might receive a tax advantage from selling using the lease-to-own arrangement or even a land contract (installment sale).
There might be other reasons a seller might be interested in your offer - don't be afraid to ask or to be creative in the arrangement you offer.

Fri May 9 2008, 14:08

If your credit is good for down payment why don't you adjust your search to work within your limits. Many instances you can have a seller concessions apply towards closing costs, less money for you at closing or zero money for closing. It all depends on how the contract is executed and the lender approval for a loan. Hope that assists.

Tue Apr 29 2008, 09:49

Hello Emily,

It really depends on your goals, priorities and plans. You might have other events in your life now that is causing you to think lease option. It's a smart move. Prices in Palo Alto are not low and not everyone can qualify for a conventional mortgage, even after the loan limit increase, the lending guidelines have tightened so much, that a buyer with excellent credit would have to have at least 20% down payment and money in the bank and income to prove. It is difficult for any buyer with little cash.

FHA is requiring 5% in certain areas. CALHFA would provide secondary financing to make up for the loan. You still need good credit (the last time I checked, it has to be at least 680) to qualify.

There are not many lease option opportuniites in Palo Alto where monthly payments are manageable. I've checked. Lease options should be carefully structured so you are well protected as the Tenant/Buyer. Landlord/Sellers want their money, but they should be reasonable.

When you lock in a future price, you have that price, but the option to exercise could be renewable -- that's where you should be careful because not every Landlor/Seller would renew.

Back to your question about benefits -- cashflow. You could use money that would otherwise go to the mortgage to invest in something else that will gain a better return.

Maybe your first step is to figure out how much per month you will be comfortable with and then seek the advice of a mortgage broker to determine the best price for you right now and go from there.

Wed Apr 23 2008, 00:24

I don't think there is a benefit of a lease purchase. You either purchase or buy.

Tue Apr 22 2008, 11:10

While I'm a big advocate of lease-options, I agree with Tara that someone with great credit but lacking the down payment would be better off pursuing a purchase, rather than a lease-option--because you should be able to find a program and a property that will let you get in, even in today's market, with very little down. check with a good mortgage broker familiar with programs in your specific area.

However, just to clarify a few other points made below, I could find a dozen lease-options today, and so could you or a good Realtor. True, most aren't listed on the MLS as "lease-options." But, as I've posted elsewhere, it just takes a little bit of looking to find more than you'd believe.

And regarding the equity build-up from option credits, it may seem low, but it's actually quite attractive when compared to a comparable mortgage...or even at a mortgage at a higher amount.

Mario is correct that you don't receive tax benefits unless you own the property (actually, though, there's an exception--you can be a resident beneficiary in a land trust and receive tax benefits), but with a lease-option your payments are typically much lower than rent. So, for instance, in my area you could buy a $500,000 house and pay pay about $2,997 in principal and interest monthly (plus about another $400 a month in taxes), and get the tax benefits of ownership. Or you could rent the same property for about $2,000 a month. I'm still an advocate of purchasing, but the net numbers actually can work out to be fairly similar.

Hope that helps.

Mon Apr 21 2008, 16:43

Dear Emily,

A lease to own, or Lease-Option (leasing with the option to buy), mainly benefits a buyer that is credit challenged but has cash available. The benefit is that the contract typically locks in a purchase price with a time period for the buyer to establish better credit (typically 12-24 months) and purchase. Locking in a price is a benefit if the market is expected to appreciate within the lease-option time period. If the buyer does not purchase then they forfeit their deposit, which is usually sizeable.

If you have excellent credit I would definitely get in touch with a good loan professional that can work with you in exploring currently available financing options. There are still programs out there that require a low down payment, especially if you have the credit and documented income to support the purchase. FHA loans require a 3% down payment requiring a less than 43% debt to income ratio.

Its a great idea to explore your options right now as it is a buyer's market and opportunity to get a steal is definitely out there.

Wishing you the best of luck!!
Tara

Mon Apr 21 2008, 15:11

Hi Emily,
Truthfully, the landlord/owner benefits more with the lease to own than you do. And there are still great programs available for first-time homebuyers that will give you the benefits of homeownership and allow you to take advantage of this great buyers market. You just don't know what you can qualify for until you talk to a lender. Make sure the lender is qualified to do Cal-HFA, ACORN, and other programs that offer 100% financing. If you need any referrals, please give me a ring and I will pass on several great lenders that I work with.

Happy house hunting,
Linda Baker
Alain Pinel Realtors

Mon Apr 21 2008, 10:25

First, the availability of those situations is very, very rare. So, it significantly limits your ability to shop for a home. Then, does the lease option benefit you or the seller. That will only be determined at the time of you exerciziing the option. I would typically recommend you fix the sales price now and then you have the option in a year or so to decide whether that price was good or not. Lease options can be set up so part of your rent goes towards the downpayment - this is probably only a few hundred dollars per month - which won't get you too far towards yours downpayment goal.
I would suggest using some of the first time home buyer programs available now which will allow you to get in to a home with very little down. This gets you in to any home that you want that is on the market and gives you tax benefits immediately - you get none as a tenant in a lease option until you own the home.

Mon Apr 21 2008, 10:06