Lease with option to purchase (sale, real estate, rental)

[pajparrish]

Has anyone done a lease with option to purchase for a home. I have been looking into this because I can't get financing right now for a home. I was told part of the rental money would go towards the purchase price in the end. Just wanted to get more info and if anyone has any ideas.

[SouthShoreDad]

I've never had a customer do it. My manager always says "I've worked 30yrs in real estate and have never seen a lease option come to fruition"

I can tell you its not as most people think, at least in my area. Owners almost always require an initial deposit...usually much more than first, last and security would amount to. Also only a portion of your lease payments go towards the sale end so to speak...a very small portion. I've had a lot of customers think most if not all of their rent wil be taken off the agreed upon price.

[capecodcathy]

Lease to purchase is very difficult from an Seller's perspective, as well as a Buyer's. The Seller is basically banking on the fact that you'll pay on time, they have to manage the "deposit money" you pay monthly (there are tax implications for you both). They are also counting on the fact, and this is a leap of faith, that the Buyer's circumstances will either stay the same (no layoffs, etc.) or improve. Even those who are willing to entertain this option will only do it for a period of 2-5 years. And it's generally not enough. The owner is still responsible for repairs, etc. as you ARE still a tenant. Also, the Seller will probably need the proceeds from a sale to make their next purchase.

All the risk is pretty much on the owner. If a valid, financed offer for a sale vs. LTO is received any Seller would be crazy not to take the viable sale offer. I could never recommend, even in the market we've had, that a Seller get themselves into a LTO situation. The value of their home could very well increase over the term of the LTO. Why not stay there and wait it out if you can?

I also don't recommend this from a Buyer's perspective, if you are renting now, and can't afford to put money aside and invest it wisely on a monthly basis, ON YOUR OWN, what makes you think you can do a LTO? If you don't have enough money for a down-payment now, and can't qualify for a mortgage in the current financial climate (which many can't), your best bet is to get your finances on track, boost your FICO, save and invest wisely for the 3-5 years you would be in a LTO. You'll look much better to a potential lender, get a better interest rate and own your home in about the same timeframe. Not to mention you'll have improved your personal finances and be better positioned for your future.
Anticipating one of your questions: Many believe the market has hit the bottom and will improve. I could purchase the same house for less in the current market.
Answer: That may be true. But you probably won't see the exhorbitant increases we saw at the top of the market over the next 3-5 years. The monthly and long-term savings you will experience by getting your finances in order, a good mortgage with a reputable lender at a good interest rate (because you've worked on your finances and FICO) will most likely offset any price increases you encounter.
IMHO.
Best of luck to you!

[aaronibus62]

Lease to own options or rent to own options are more common elsewhere, like Pittsburgh, which is why my wife and I want to leave Massachusetts someday