Rent vs Buy in Charlotte>Question Details

Jane Francis…, Real Estate Pro in Charlotte, NC

In this market, can someone explain the true up side of a lease-purchase for the buyer?

Asked by Jane Francis Cross & Homes By Cross Team, Charlotte, NC Wed Jul 1, 2009

It seems this is really just a good deal for the seller. There is such a surplus of inventory, why would a buyer view this as a good path to home ownership? I come across this time and time again, and perhaps my understanding of the lease-purchase is skewed. My understanding is that you pay X amount of dollars per month, like a regular lease, then a little over the top of that, which is put aside for your downpayment, should you decide to go forward with a purchase at the end of the lease. If you decide not to go forth with the purchase, the excess money stays with the seller. It ties the property up for no one else to buy it, but really, my market is not so unique, that one couldn't possibly ever find something comparable in a year. Do I have this picture right?

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Celine Fang’s answer
For the buyer, lease purchase is good when the buyer can not qualify for mortgage now but want to move in to a house sooner than they can actually own it. The surplus of inventory is created by the fact that many interested buyers can not qualify for mortgage.

For example, people who got increase of income recently from a job promotion want to move in to a better neighborhood... but if they got to wait for the 2 yr stable income, they can't buy the house now. Or someone with less than perfect credit, not enough down payment etc.

For the buyer, it is also good to lock in a future purchase price. In case the value goes higher in a few years, they could have locked in a better deal. If the value goes down, the seller will most likely have to sell at whatever it appraise for at that time.

The option consideration is the down payment when buyer decides to exercise the option, and would be forfeited if buyer breaches the contract or decide not to purchase.

Extra monthly payments going towards the equity is not necessary. In case the renter breaches, it is usually an eviction because the property is being rented until they buy. But if some rent goes toward the equity, then there could be more trouble to process the eviction or it could be as much work as foreclosure.

Service providers get pay by transactions. In this market, anything you can do creatively helps. As a realtor, you can get paid when the property is leased, and then again a yr or two later when it is sold.

Hope this helps :-)

Celine Fang
Residential Property - Private Financing Consultant
Immi-Nest, LLC

Ask me about Seller Financing: 560 Credit Scores, 5% Down Payment, 30 Yr Fix Financing.
0 votes Thank Flag Link Thu Jul 2, 2009
Unless you are truly, truly in love with that house, like a spouse or mate in love...just lease it or rent it...if you don't know all the ins/outs of a lease purchase, the buyer usually gets the raw end of the deal
0 votes Thank Flag Link Yesterday at 5:42am
First and Formosa, check your states laws regarding lease-to-purchase homes. Some states ( mine included) offer no protection for the buyer (I.e. They are not "legal"). I have had more than one friend get burned buy this arrangement,where the property owner decided during or at the end of the lease term they didn't want to sell. Make sure you have an very specific and ironclad contrac, hopefully one that would return any monies paid in excess of the regular rent to go toward the down payment. I would also require that those additional monies be held in escrow, rather than paid directly to the seller/ lessor. otherwise, even of you have a contract, what's to keep the. From spemdimg or keeping that money by saying they don't have it. Them you have to deal with legal proceedings. I hope you find a home you love!
0 votes Thank Flag Link Yesterday at 4:43am
Sorry for the spelling mistake. Missed it on my proof-read.
Flag Yesterday at 4:44am
This could be an advantage to both buyer and seller in some situations. There are no two situations a like. I would suggest an Agreement for Sale or Exact Wrap of the existing mortgage with buyer claiming property taxes and a 5 year or 10 year call. As a seller - I prefer this on rentals so i don't have to claim all the capital gains at one time.
0 votes Thank Flag Link Mon Jul 27, 2009
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