Lease-to-Own

Real Estate

I just got off the phone from a man leasing a home he'd like to purchase in just over a year. He wanted to know about lease-to-own. Here is some information regarding lease-to-own purchases.

Lease-to-own homes are laden with pitfalls for the buyer and could be an exceptionally bad idea. They are not an easy way to buy a home without having the sufficient credit, income, and down payment to do so, as most people seem to believe. Here are some reasons why they are a bad idea:

1. You'll still have to come up with a lump sum (essentially a down payment) or "option" to enter into the agreement. This is due upfront and is usually a percentage of the agreed upon purchase price. Plan on $3,000-5,000.

2. You'll agree on a date when you'll have to exercise the option to buy. Let's say 1 year from now. At that time, you'll still have to a) qualify for a loan and b) have sufficient down payment.

3. If you pay the rent late, even once, the seller typically reserves the right to keep everything and void the deal.

4. How do you know the price you negotiate down the road will still be a good deal when it comes time to actually purchase the property? Will you qualify for the financing then? Will it appraise out? Nobody has a crystal ball into the future of the housing market.

5. You'll be responsible for the upkeep of the property throughout the life of the lease. If the furnace goes out, you'll have to fix it. Same for the roof, plumbing, and everything else. Remember, this is for all intents and purposes now "your" house.

Violate any of the above terms and the seller keeps everything you gave them upfront, and also all of the money credited towards your down payment from each month as well as the property with any updates or upgrades you put into it.

Too much risk, too much money, and too much uncertainty about what your situation or finances will be too far down the road in the future.

Give me a call and we can talk about the situation you are in and see if there may be a better way or an alternative.