Buying Real Estate Using Lease Purchase Option

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/

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/

Understanding Rent-to-Own Apartments | Oh My Apartment

Understanding Rent-to-Own Apartments | Oh My Apartment: "Rent-to-own apartments are apartments that give the renter a lease purchase option. In other words, when your lease term is up, or at some other time, as stipulated in your rental agreement, you will be given the option to purchase the ...



Oh My Apartment - http://ohmyapt.apartmentratings.com/"

Article On Lease To Buy In Florida Today

Real estate: Lease-to-own an option for buyers

Deal allows savings toward down payment

BY ANNE STRAUB
FOR FLORIDA TODAY
• JULY 19, 2009

Kurt and Nichole Coleman need some time to save a down payment on their next home, but that doesn't mean they're postponing the search.In fact, they've found the house they want to buy, and they're already living in it.

The Colemans are using a creative financing tool known as a lease-purchase option on the Melbourne Beach home, which they moved into in May. The couple has a lease on the property and an option to buy it any time in the next 10 years.

The arrangement lets homebuyers save toward the purchase -- often, a portion of the rent is designated for the down payment -- while giving the seller some rental income in the meantime.

"Basically, you're buying time," Kurt Coleman said.

Coleman is a fan of the financing tool, and used it to buy his first home when he was 25. At the time, he wanted to buy a home, but he didn't have enough cash to qualify for a loan, and he didn't have a credit rating.

Under the terms of that deal, he had a lease on a Melbourne home and an option to buy in five years. He paid double the market rent for the first six months, with half going toward the down payment. Then, the rent dropped to the going rate, and 20 percent of that amount went to the down payment fund.

The forced savings helped him quickly amass the 5 percent down payment he needed as a first-time homebuyer. He closed on the home in three years, instead of five.

This time, he and his wife are using the method to buy a home in Melbourne Beach. They need the time to save a down payment because they're keeping the Melbourne home, as well as Nichole Coleman's previous home, as rentals.

They negotiated a 10-year deadline to exercise their purchase option.

"I gave myself a lot of breathing room because of the economy," said Coleman, who works as a firefighter for the city of Melbourne. His wife is a nurse and the couple has two children.

Their security deposit and20 percent of their rent payments will go toward the down payment. The purchase price of the home is already settled; the Colemans offered the seller his full price to make the creative approach palatable.

The deal looked good to listing agent Cindy Walker, who had listed the property for the seller for a long time without any purchase offers. The home had been rented on and off, but nothing approached a sale."The way I presented it to the seller was, 'I do believe there's someone for every property, and this is it,' " said Walker, a Realtor for South Island Real Estate in Melbourne Beach.

She received a rental commission for the lease arrangement, and will receive a sales commission if the purchase option is executed. That discourages some Realtors from working on lease purchases, she said.

"Nobody wants to wait 10 years for a commission. But I look at it as money in the bank," she said. "I've now established a relationship with this other person, and this is a relationship business."

She and Coleman offer tips for others contemplating using a lease-purchase option:

Don't be afraid to ask. The Colemans approached Walker with the idea. The seller wasn't looking for a lease-purchase arrangement, but now he is relieved of the maintenance on the property and he gets regular rental income, Walker said.

Search for a home listed for rent and for sale. Coleman used the computerized multiple listing service to comb for potential properties, atwww.brevardmls.com. If one was listed for sale and for rent, he knew the seller didn't need an immediate sale.

Know your credit, know what you need to do to qualify for a mortgage and have a plan to get there. For Coleman's first purchase, he had a checklist of items -- including using a secured credit card to build a credit standing.

"You don't want to be six months out from your option limit and find out that you're not going to qualify," he said.

Ask for no prepayment penalty. That way, you can execute the option before the lease term is up, if you're ready.

Everything's negotiable. How much of the rental payment will go toward the down payment? Will the renter pay above-market rent to compensate for the down payment fund? Who will handle maintenance and repairs?

The Colemans are gambling on where interest rates will be in the future, but they're confident the market will rebound. "I feel like I'm going to have quite a bit of equity in 10 years," Kurt Coleman said.