Leasing with an choice to buy, also referred to as lease-purchase, is an option for those buyers who wish to get a house but aren’t able to find funding or do not possess a full down payment. It’s also a solid option for those homeowners who should move out and sell a house quickly, for example job transferees.
Identification
Lease-purchase agreements are leasing agreements using a set term that lead to a home purchase. The seller and renter/buyer agree on a set selling price beforehand, in addition to a leasing duration. One to 3 years is standard. The renter/buyer is to purchase the home by the end of the term. The lease is standard, except the renter/buyer is usually responsible for the maintenance and upkeep of the house. The seller holds the deed before the sale.
Factors
Lease-purchases require down money as collateral deposit/escrow money. This money is usually non-refundable when no purchase happens, but is credited to the purchase price at closing. This residue is between 2.5 and 7% –enough to be too much for your renter/buyer to walk off from but maybe not so much it is not affordable. Many agreements also have a credit toward the purchase price from each month’s rent. The seller writes the amount or percent into the contract.
Buyer Benefits
Most buyers who take advantage of lease purchases have credit issues that don’t allow them to purchase now, but will evident over time. Bankruptcies have a minimal wait time following discharge, as do foreclosures, even before a buyer can qualify for a mortgage. Lenders also require a definite period of clean credit for loan approval. A lease purchase allows a renter/buyer to enter the house they want and save money toward the purchase price whilst waiting the appropriate time to resolve his credit issues. Other buyers who may take advantage of a lease-purchase is someone who is fairly certain about a locality or house, but wishes to be able to back out of a purchase whenever proves it is not a fantastic fit. Even though the buyer/renter would lose his deposit, then it’s less than he’d lose in closing costs and real estate agent fees when he needed to buy and sell the house.
Seller Benefits
Sellers who should vacate quickly and want someone in the house immediately, but who don’t wish to be long-term landlords, are the conventional lease-purchase sellers. These sellers don’t have enough time for a home to sit empty while they cover two mortgages. Being a landlord usually means that the homeowner would be responsible for any repairs repairs and damage to the house, which is very common in rentals since tenants don’t have any long term interest in the house or its structure. Renter/buyers do have a long-term interest in the house, since they will be purchasing it, and take better care of the house than a renter typically would. In addition, the massive deposit usually means the owner will have plenty of money to make repairs and pay the mortgage while waiting for one more buyer if the renter/buyer not purchase the house.
Disadvantages
There are a few disadvantages to some lease-purchase agreement for both buyers and sellers. Renter/buyers with credit issues currently have a history of not meeting their financial obligations, so sellers take a danger in choosing a home out there in the hope that the renter/buyer will purchase it. A dealer can’t request too large of a deposit since they will restrict the pool of available renter/buyers. Moreover, the purchase price is usually based on present market value, or so the seller may lose money on the purchase price later in the event the market value of the house has gone up. On the other hand, renter/buyers don’t get the tax advantages of home ownership while they are leasing, but they’ve all the responsibility. They also may not have full use of the property as they are under a lease agreement and they don’t have the property. Any improvements that they make may possibly be lost if they find that they cannot purchase the house or the seller makes the decision to evict them for breaking the lease agreement.