… Or could just saving just about that much amount for a down payment just about the same?
Thanks firemedi & lisalaub. Firemedi, I’ll email you, thanks for leaving me answers to my questions. You all have a good night.
6 thoughts on “Is a lease option to purchase worth making the payments?”
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Lease options can be a great deal or they can be a real dog. It completely depends on the specific transaction and the motivation of the parties.
Some tenants will never qualify by the end of the option period. It is obvious before the deal is struck yet the tenant (future borrower) just does not understand. They did not do their homework.
Or the tenant finds that the house is not want they really want to own so not exercising the option is a possible exit. Note that many deals you can legally exercise the option and immediately sell so that is a potentially better way to exit when the time is right.
Some landlords only want to make extra cash so they set up a deal that will never really make sense for the tenant buyer. Other landlords hate owning a rental and really do want it sold. They use a lease option to delay the sale so they have time to arrange a 1031 tax deferred exchange. Or they want to wait 1 year until the property can be sold but only paying capital gains vs. the short term (normal) income tax rate.
In many lease option deals the tenant buyer could not qualify. Unless something is going to change (bigger down payment, income increase, temporary credit report problem) is the length of the lease really going to make a difference? Either decide that it will not work or make sure that the time period allowed on the lease and option is sufficient. Building an extension clause is a good way to avoid having to buy by a deadline that is not optimal for some reason.
A lease option has to be compared to renting plus saving. If you can save more than the effective amount saved through the option then why do the deal? One clear reason is if you get a much better deal (price mostly) if you go the lease option route vs waiting.
In some cases you can sign a lease option and then make improvements that really do increase the value. Understand you are improving the landlord’s property unless you do purchase.
Also note that it is not legal for a landlord to require you to be responsible for major repairs (heat, hot water, roof, etc). They are legally still the landlord and must provide habitable housing if they are collecting rent. It does not matter what you sign in terms of an option agreement. A judge will overturn such an agreement if the landlord and you agree that you will be responsible for all major repairs if the case goes to court. Do note that any time you are in court there are surprises so better to just get the agreement right in the first place.
hey did u read the other answer i just typed to u? i’m sorry i’m goin to sleep now but please email this to me, and i’ll give u more info. but basically,
here’s what i’d say:
if we were friends i’d say give the seller as little down as possible, and ask for a portion of the rent to go toward downpayment or purchase price.
if we wernt friends, or just that u were buying from me (i wouldn’t gouge u lol) but i’d want a much down as i can scrape from u, period. i want as much commitment that u have that u will take care of "my" house untill u buy it.
In my Mortgage Broker class they taught us that 90% of lease-purchases never happen. My suggestion get some rental history a year to two years save cancelled checks and get your score in the mid-six hundreds and you can get a hundred percent financing. Have the sellers pay closing cost!!
Actually, if you have the financial discipline, saving the money instead of doing a lease-purchase is better financially. However, the benefit to a lease-purchase is that after you’ve lived in the house for a year you will know it intimately and can choose to back out of the agreement if you change your mind. If you want some good advice about the pros & cons, talk to a mortgage banker (not a broker). My favorite is Julie at http://primelendingonline.com
Good luck!
Join the military or marry someone in the military and use their VA benefits to get a 100% loan with a discounted interest rate.
As long as you find a buyer willing to pay your closing costs, or buy a house that appraises for more than it’s purchase price, you would have no out of pocket expenses.