Please provide the pros and cons. Do’s and don’ts. What to watch out for and ask for in the terms of the agreement.
3 thoughts on “If you are unable to qualify for a mortgage is lease with option to purchase a good idea?”
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lease options can be beneficial but very few every actually work. the main reason is that there is a reason you can’t buy the home now. chances are, that reason won’t go away in the next year.
if you have a down-payment and 600 credit score you should be able to buy a the home with an fha loan. if your credit is below 600 but with very good reason you could look at a seller finance purchase with your down-payment.
another big problem is that a lease-option purchase doesn’t spell out the purchase part of the contract, just the lease. so when it comes time to purchase there are a lot of variables that may kill the deal and leave you without a home or your money.
if you go with a lease option then write a purchase contract with the lease-option contract as an addendum. that way all the details of the purchase and the lease will be in writing. the terms can be changed down the road if necessary but you won’t have any surprises.
just be sure that the problems preventing you from purchasing right now, with amazing rates and low prices, can really be fixed before the end of the option to purchase. good luck.
if you decide to go this route, PLEASE make sure you have it reviewed by a real estate lawyer. I know tons of people who have gotten ripped off by people doing these sorts of deals. Buyers have a habit of walking away from these deals with your money going along with them!
If I were you, I would first find out why the seller is putting out a lease option. Some sellers just want to sell it because they foresee not having enough money to continue paying the mortgage and trying out all possible options to sell it. Some sellers may just want to cheat your money.
Pros of buying with lease options
1. Let’s assume you signed one year contract and you decided to put down $X dollar per month. At the end of the year, if the price of the real estate dropped more than $X x 12 months, you can always walk away from the deal and only loose a fix amount of money. You don’t get stuck with the real estate and have to worry about selling it yourself.
2. Because you are living there for a year or so already, by the time at the end, you know for sure if you love or hate living there. So if you hate it, you can walk away. Again, of course you are risking part of your down payment money.
3. You have time to save up for your down payment or build up your credit score during the contract period.
Cons
1. This goes back to the pros number 1. If the price of the property went up dramatically, the seller still cannot change their mind and back out of the contract.
2. I guess if you are not careful, the seller can potentially walk away with your money. (So to avoid, make sure you get your own agent).