Is Leasing a Valid Way to Buy A Home?
Most people dream of owning their own home and enjoying all the benefits that go along with it, but many are held back by financial restraints. It is not always easy to save up enough money for the required down payment or there may be a problem with credit history.
These problems do not necessarily preclude an individual from pursuing other options such as considering a lease-to-buy purchase agreement. This arrangement might be perfect for the person with a less than stellar credit score, as it gives more time to repair any damaged credit and establish new. Mortgage lenders require credit scores of at least 680, but look more favorably at those above 700.
Leasing a home with the intention of purchasing in a few months or years, can be very beneficial for those who are financially strapped in any way. Being able to build or rebuild credit while leasing helps a buyer negotiate a better deal with the seller. It is frustrating to finally find the perfect home, but not be able to purchase it outright. This is one of the major advantages of signing a lease-option agreement. With this option, a tenant can lease a home and enjoy living in it for a specified amount of time with the agreement to purchase at the end of the lease. It seems like the perfect solution for buyer and seller.
How Does a Lease Purchase Agreement Work?
When a buyer decides to lease a home with the option to purchase at a later date, both buyer and seller agree on the final purchase price. When this option is used, the seller may decide to ask for a price that is a bit more than market value in order to recoup some costs associated with leasing for a period that ranges anywhere from one to three years. Both the seller and the buyer must sign an agreement giving the buyer the right to purchase the home outright at the end of the lease term. The terms are completely negotiable between both parties including the length of the lease term. The buyer agrees to pay the seller a predetermined amount each month. This amount is referred to as option money. Both parties agree that this money does not represent a down payment, but a certain designated amount of the monthly lease payment is applied toward the total purchase price. A lease purchase agreement ensures that the seller cannot sell the home to another party and the buyer cannot arbitrarily sublease without obtaining the sellers permission in writing.
Lease Purchase Advantages and Disadvantages for the Buyer
A buyer does not have to pay out a large down payment or go through a stringent qualifying process when leasing. The lease with an option to buy designates that a portion of every monthly payment is applied to the final purchase price. This ensures that the buyer is better prepared to purchase at the end of the lease. Even though the buyer is responsible for certain expenses such as utilities, the seller pays the property taxes. One of the disadvantages of leasing is not being able to build equity while leasing. The buyer risks losing everything if they decide not to purchase. A lease purchase agreement is a legally binding document that obligates the buyer to purchase the home at the end of the lease.
Questions and Answers:
Q. What happens if the buyer defaults by missing payments or being consistently late with the payments?
A. The seller has the legal right to retain all money paid and sue the buyer.
Q. Who is responsible for routine maintenance when leasing?
A. The homeowner is usually the one responsible for major repairs, but the buyer is expected to take care of lawn mowing and keep the property clean.
Q. What happens if housing prices go down during the course of the lease, but the contract lists the purchase price?
A. The legal agreement should allow for renegotiating the final price.
Q. Why is it important to get a title search before entering into a lease purchase agreement?
A It is important to know that the property is not in foreclosure or that more is owed on the property than it is worth.
Q. Is it a good idea to consult a real estate lawyer before signing a lease purchase agreement?
A. A real estate attorney will verify that all legal aspects of the agreement are in order. It is always better to be safe than sorry.