"complex" - a condo? A lease purchase in a condo at this time? Wow.....
I've worked with folks coming off divorce, I always have them rent to establish an independent credit history, and then buy. After a divorce there are 1000 variables, including where you end up given the upheaval it brings. Why would you immediately buy or walk into a lease purchase? Temporary = rent in my book.
"Tenant is investing to update the home" - sellers loves that. "....If they back out - which is unlikely...."? That sentence slams home the point about the Catch 22 you put yourself in with lease purchases - damned if you do and damned if you don't. What seller wouldn't like that? Especially in a condo - in this market - at this time?
Let me again properly drive home the point....
After the deal blows up, you're in even worse shape because whatever down payment you had is lost. Now, where do you go from there? A review of this week's headlines will tell you that FHA is increasing requirements and conventional lenders are talking 20% down payments.....
So options become closing on an overpriced lease purchase home that will put you immediately behind the financial 8-ball or bailing on it and leaving the down payment and all other money you put in, which will put you behind the financial 8-ball.
Don't do it - rent if you need to, stabilize the finances and get your credit squared away. You will have much more buying power as a true buyer - lease purchases are financial tar pits for buyers.
Here's one of my recent lease/purchase success stories. Here is what made it a win-win.
The client knew they wanted to live in the complex.
Their financial situation was extremely solid.
The need for the lease portion was temporary, pertaining to the ability to purchase an asset after a divorce.
The buyer/tenant is investing money to update the home at their expense.
Even if the buyer has to back out, which is unlikely after the large investment they've made, then my seller gets the home back, upgraded and more marketable.
The most important determination is to understand your motivation or need for a lease/purchase arrangement.
Better Homes & Gardens Real Estate Metro Brokers
The best way to go about this is to sit down with a sharp (or a few) mortgage folks and see what needs to be done to buy a hom, I abhor lease purchases for too many reasons to mention.
Michael did a good job of highlighting the process, but consider that list:
1. You agree on the price now that you will pay in the future. Where are values going? How many times have we "hit bottom"? This will be a continued slide then a flat bottom....
2. Sure, you can exercise the option and pass on the deal....and leave your down payment, maintenance, prorated rents, etc etc in the owner's pocket.
3. If you do exercise the option in 12-36 months, where are rates going to be? Where do you think they will be?
4. The seller will love you because it's really a win/win for them - the home is covered while you're in there, your non refundable down payment is his and if you buy it, you'll be overpaying...what's not to like?
There are more reasons than this (locations, condition) but considering a minute fraction of these actually close and buyers simply always end up on the short end of the stick, why do it? I know I'll have agents tell me otherwise - fine....I'll just say that I've been doing this 20+ years and have even appraised lease purchase homes as they got close - I personally have seen nothing but buyer disasters around them.
Get with a lender, figure the situation out and rent until you can buy - you'll save money and misery down the road.
Oh - let me be clear - I'm not a fan of lease purchases in any form
I have a series of 12 home buyer newsletters I'd be happy to include you on, of you send me your email address. Just let me know how I can help.
Feel free to contact me :
it's the perfect spot!
tania gardÃ¨re macleod
Harry Norman, REALTORS
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Lease/Purchase is a searchable criteria in the MLS system, however, in this market, most home sellers will at least consider the Lease/Purchase arrangement with the right terms.
Your agent should be prepared to do a little more work, contacting the listing agents in advance to see if a lease/purchase is a viable option. He or she may have to "sell" the idea if the listing agent isn't familiar with the reasons why a buyer might want this option or how it would benefit their seller.
If structured right, it can be a win-win for both sides of the transaction.
Let me know if I can be of further assistance!
Better Homes & Gardens Real Estate Metro Brokers
Lease Purchase Basics
â€¢Buyer typically pays the seller option money for the right to purchase the property in the future. This option money may (should) be substantial.
â€¢Buyer and seller agree on a purchase price, often at or slightly higher than fair market value.
â€¢During the term of the lease, the buyer agrees to rent the property from the seller for a predetermined rental amount.
â€¢The term of the agreement is negotiable, but the common length is generally from one year to 36 months, at which time the buyer will apply for bank financing and pays off the seller in full.
â€¢The option money usually does not apply toward the down payment and is non-refundable, although that may change when we represent the Lessee/Buyer .
â€¢A portion of the monthly lease payment typically applies toward the purchase price.
â€¢No other party may purchase the property unless the buyer defaults and the buyer typically cannot assign the lease purchase agreement without prior seller approval.
â€¢Buyers may be responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
Bottom line, get a good agent to help with a Lease/Purchase Contract; it will likely save many headaches and more than a few dollars. Please call or email if I may help further, and Good Luck!