Owing a home is a big part of the American dream. But not everyone is fortunate enough to become a homeowner due to delimiting factors such as insufficient income, bankruptcy, bad or no credit, loss of employment, etc. For people with such troubles, owning a home is a distant dream and some of these people resign themselves to a lifetime of renting. But such people are not without options. Rent-to-own, which is also known as a lease-purchase option, can be an excellent alternative available to some people who are currently unable to buy a home.
A rent-to-own or lease-purchase option is an agreement between a prospective home buyer and a home seller. The agreement is basically a rental contract with a right to purchase the property after a period of time (usually 1 year). When a home seller offers a lease-purchase option, what they are really offering is the option to rent the house at some monthly rate, and to lock in the sales price of the home now, even though the prospective buyer would not actually purchase the house until a later time (if at all).
Here is a hypothetical example. Let’s say the monthly rent for a home is $1700. Under a lease-purchase option, a prospective buyer would rent the home for the $1700 a month, but would also pay an additional premium (e.g., $200-$300) every month for the option to buy the home after a period of time (usually 1 year). So in this example, the total monthly rent is actually $2000, but $200-$300 of the money will be applied toward buying the house at a later time. In other words, the home seller would apply the $200-$300 extra paid every month toward the prospective buyer’s down payment at the end of the year.
The good news for prospective home buyers is that it allows them to lock in the purchase price of the home now, even though they are not purchasing the home until a later time. The bad news is that if a buyer decides not to purchase the home at the end of lease term, the seller often keeps the premium amount paid over the year, although this is usually a point of negotiation.
Prospective home buyers should know that many of the terms described above are negotiable such as how much the monthly rent will be, how much extra has to be paid every month for the option fee (if any), the length of the lease term, etc. The other issue to consider is if it makes sense to lock in a home purchase price now in markets where real estate prices are still declining.
When compared to renting, a lease-purchase can be an attractive alternative because it gives prospective buyers an opportunity to own a home before they normally would be able to. There are some advantages to a lease-purchase option such as:
1) Low or No Initial Down Payment. Many lease-purchase options do not require an initial down payment.
2) Equity Advantage. At the end of the lease term, the value of a home may have appreciated over time, which benefits the purchaser.
3) Living Experience. Prospective home buyers have the opportunity to try out a home and neighborhood before purchasing the property.
4) Leverage Advantage. With just a small investment, a prospective buyer can control a property; yet still have the option of not buying the home if market conditions don’t warrant it.
Rent-to-own or lease-purchase option can be an effective strategy to home ownership. However, there are both positive and negative aspects to this type of approach (as described above). A good real estate agent can help you navigate the complex world of rent-to-own and lease-purchase option properties.
From:
http://www.mortgageratesaholic.com/9053/buying-real-estate-using-rent-to-own-and-lease-purchase-options/
Wednesday, September 16, 2009
Monday, September 7, 2009
5 Reasons Why a Lease-Purchase Option May be the Best Thing for You
Buying a home may very well be one of the most important things you do in life. Once you own your home free and clear, no one can take it away from you. That means you will always have a roof over your head and you will also have a net worth that is somewhat substantial. After all, a home is an equity property. Yet, some may be a little concerned over the process of purchasing a home these days. The real estate market is up and down and there are warnings of future homes being underwater due to an unstable market. So, does this mean you should sit out of the home buying process? The choice whether or not to do that is ultimately up to you. However, there are a number of signs that show it may be wise to explore a lease-purchase venture. Here are five reasons why:
When you lease a home without a purchase agreement, the money that you pay every month goes solely to the landlord. When you have a lease-purchase agreement in place, that amount of lease money is going towards a down payment on the home. This means you are gaining a potential huge value out of your monthly payments which would not be possible otherwise.
On the flipside, if you decide not to purchase, you could simply move out and find another place to live. You could actually even renew the lease agreement without a purchase plan. If you were to purchase the home outright and had a 30 year mortgage, you certainly could not just walk away from it. Well, actually, you could but the consequences would be somewhat severe.
As much as we prefer not to think about it, there may be instances where you will be unable to pay your monthly lease fee. In a worst case scenario, you may be evicted due to failure to pay rent. If this occurs, your credit will be marred and you will need to find another place to live. While this is not a nice scenario to experience, it is certainly much better than having to deal with foreclosure issues.
You can gain a definitive insight on the costs of maintaining the property. No, it is not just that monthly lease fee that comes out of your pocket. The utility bills, the upkeep of the property, and various other fees come into play when living in a home. Upon gaining a clear idea of what the total costs are for owning the home, you can then make an informed decision as to whether or not you wish to purchase the property.
The comfort level of living in the neighborhood will be revealed. Maybe you really don’t like having to drive 5 miles to reach the nearest convenience store. Yes, you really will not get a gauge on how much you like a neighborhood until you spent a little time there. A lease-purchase agreement lets you do this.
http://www.thisisunioncounty.com/blog/2009/09/5-reasons-why-a-lease-purchase-option-may-be-the-best-thing-for-you/
When you lease a home without a purchase agreement, the money that you pay every month goes solely to the landlord. When you have a lease-purchase agreement in place, that amount of lease money is going towards a down payment on the home. This means you are gaining a potential huge value out of your monthly payments which would not be possible otherwise.
On the flipside, if you decide not to purchase, you could simply move out and find another place to live. You could actually even renew the lease agreement without a purchase plan. If you were to purchase the home outright and had a 30 year mortgage, you certainly could not just walk away from it. Well, actually, you could but the consequences would be somewhat severe.
As much as we prefer not to think about it, there may be instances where you will be unable to pay your monthly lease fee. In a worst case scenario, you may be evicted due to failure to pay rent. If this occurs, your credit will be marred and you will need to find another place to live. While this is not a nice scenario to experience, it is certainly much better than having to deal with foreclosure issues.
You can gain a definitive insight on the costs of maintaining the property. No, it is not just that monthly lease fee that comes out of your pocket. The utility bills, the upkeep of the property, and various other fees come into play when living in a home. Upon gaining a clear idea of what the total costs are for owning the home, you can then make an informed decision as to whether or not you wish to purchase the property.
The comfort level of living in the neighborhood will be revealed. Maybe you really don’t like having to drive 5 miles to reach the nearest convenience store. Yes, you really will not get a gauge on how much you like a neighborhood until you spent a little time there. A lease-purchase agreement lets you do this.
http://www.thisisunioncounty.com/blog/2009/09/5-reasons-why-a-lease-purchase-option-may-be-the-best-thing-for-you/
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