I would like to purchase a home, however, my credit is not the best… I recently learned of the "lease to purchase option" when buying a home. Since this is totally new to me, I would like to know more about this option, can anyone offer some advice?
5 thoughts on “what are the pros and cons of the "lease to purchase" option when buying a home?”
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You have to put down somewhere around 3 months worth of deposit on top of your first month’s rent before you can move in. You can’t really negotiate much on the purchase price either. If you choose not to purchase or can’t get financing at the end of your lease, you lose your deposit. Sometimes the owner keeps the deposit anyway. Your monthly rent will be higher than it would be in an apartment so it’ll be harder to save for a down payment – and you NEED a down payment to get a loan with bad credit.
Buying a house is great unless your credit is crappy, then it’s the worst mistake you could ever make.
Want to own a home? Rent the cheapest, smallest place you possibly can – and then sink every left over penny into the debt you’ve created. Get a second job if you have to. Clean up your credit and save a decent amount of cash for a down payment THEN think about buying a house. This process will only take a few years if you do it seriously, and it will save you a TON of hassle and money.
If you’re not sure where to start, visit http://www.daveramsey.com – he’s got a lot of no-nonsense advice that really helps. Be prepared for brutal honesty though.
Pro. You get to tell your friends you are buying a house.
Con. You really are not buying a house. The "seller" never intends to sell you the house. They would much rather you get into a position where they take the house back from you so they can sell it again. In this situation it is much quicker and easier for them to evict you than a foreclosure would be if you were really buying.
Pro. You get to tell your girlfriend you are buying a house.
Con. Your payment is much higher than a house payment would be and maybe none of it or very little of it applies to purchase. If you get evicted none of it is returned.
Pro. You get to tell your kids you are buying a house.
Con. You do not get any tax benefits. You may not have a locked in price. The con man that is "selling " you the house may not be making the mortgage payment and six months into it you may find the mortgage company has foreclosed and you lose everything.
There is a lot more. Most states have no standard contract form for this type of contract and they seem to want to make it illegal but don’t. The "seller" has a lawyer that drew it all up totally in their favor.
Both Pro and Con possibilities exist.
If the seller is honorable and lives up to his agreement, very Pro for you IF the agreement is well written and covers all likely contingencies. That is a BIG IF.
You build equity while you are saving up money or a better down payment. It may give you time to rebuild your credit. Make sure you do all the right things and do not mess up on your credit obligations.
That said:
I always want to know why the seller wants to sell on lease purchase. A home inspection is strongly recommended. I would order a title search too. If he is an investor, fine. If there are problems that a lender would have with the home or title, find out now.
The agreement should indicate:
What time frame applies?
How much of each payment will be applied to the purchase?
IF the seller fails to live up to his end, very con. What if he fails to pay the current mortgage, taxes, insurance, current or future income taxes,? What happens if he gets sued before you get full title?
Make sure you get renters insurance.
I would NOT do the deal without a real estate lawyer on your side. I would get lots of education before doing a deal.
Biggest con of all they do not make the house payments and one day there is a notice taped to the door that the property is being foreclosed on and you have so many days to get out.
It is really a very bad idea.
if your rent is 900 bucks a month, you have to pay like another 900 dollars a month not including insurance etc etc or like 25% more 2025 minimum. where as the same house with mortgage with insurance would be 1125. its a contract between you and the owner and you dont get write offs i think because you dont get the house unless you paid off everything. its buying something at a premuim. You can buy any house any where but buying this particular house will cost you more.
Pros- you get the house you want- like the only thing in the universe. lol. because they only produced 1.