Installment sale vs. lease to own

Asked by lancseller, Lancaster, PA Mon Aug 25, 2008

What would be the pros and cons of either of these for a seller? I'd prefer a lease to own but we have a buyer who wants to do an installment sale (our agent is currently trying to find out why). We've had our home on the market over 6 months and are no longer living in the house- we've rented an apt in a new town. We are fine with continuing to rent for 2 years while the installment sale goes on. One big worry is that we still have a mortgage on the house so if they stopped paying we'd need to foreclose on them to avoid losing the house to our bank. Anyone know the costs of foreclosing on someone? Also, how does the homeowners insurance work?

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lancseller, Home Seller, Lancaster, PA
Mon Aug 25, 2008
Thanks Keith. They can't get a mortgage b/c they are self employed. They recently opened a business within the last 6 months and need to show 2 years worth of steady income to get a mortgage. I am not real concerned about them being able to pay us- their credit scores are decent (high 600 for him and low 700 for her) and they have no history of collections or even late payments beyond 30 days for all their credit cards and student loan. They have cash- they just don't have a lot of reportable income in the past for tax purposes. But I found out today that we probably can't do this type of sale anyway b/c of a due on clause sale on our mortgage. I realize we have been on the market a long time and its probably price but we already reduced a few times and other similar homes have sold for our asking price so I am not sure what is going on there. I have been in some of them and they do not even have the updates we have. We are not upside down in the house yet but we put so much blood, sweat, tears and money into it that its hard to keep reducing it. If it comes down to it, we probably will end up renting because I just can't bring myself to "give it away" which is what I am already feeling like we are doing.
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Keith Sorem, Agent, Glendale, CA
Mon Aug 25, 2008
There are some questions posed here that really should be answered by your Realtor or perhaps their broker.
I would also recommend discussing this with your CPA or tax professional.

I am puzzled why the buyer wants to purchase the property by installment sale rather than a mortgage. That would be question number one.
Second question is that if your home did not sell in six months, don't you think that some homes have sold in the last six months? But yours did not?

In most cases homes that do not sell are over-priced. Remember , it is not the amount you owe, nor the amount you need to net that determine the price. If this is a case where you need to sell, but if you did sold at market price you would come up short, then you have a different question.

I would suggest talking with your REaltor, or their broker, about your options. The only reason I can think of for an installment sale is that is the only financing they can find. If that is the case, are you sure you want to sell to this buyer? In most cases lease to own is problematic, most buyers are not interested in locking in a future price in a declining market. The advantage of a lease to own is that you are getting an premium for allow the buyer an option to purchase the property. Depending upon your market conditions you might be better off just renting it out.

If you are upside down financially, then renting it out may be your best bet. Having a home on the market, vacant, for six months does not sound like a good plan to me. I went through the same thing. At first having a rental property was streesful. In the long term it turned out to be a great decision.

PS Your profile shows you in Atlanta (see link below). Your picture says "lancaster". FYI
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