How does a Lease/Purchase or Lease-to-Own work?

This is a popular question and the answer may interest you... First, notice the term: Lease/Purchase. The two words almost joined is a good visual of how the contract works.

1. The Lease/Purchase contract allows you to provide evidence of your ability to pay the mortgage. This is especially helpful if you need help in qualifying for a mortgage. Some examples of not qualifying for a mortgage may be:
a. If you have had credit problems in the past.
b. If you have a shared debt with another person on your credit report.
c. If you own your own business for less than 2 years.
d. If you have a higher debt to income ratio.
e. If you are just starting out and have no credit history.

2. The Lease/Purchase allows you to use the payment history of the contract term as evidence of your ability to pay. Many mortgage lenders have programs which consider this in your mortgage application.

3. The down payment is normally applied toward your down payment upon closing of the purchase loan, instead of a standard deposit on a straight lease. The benefit is: Your money is applied toward your investment in your new home. The risk is: If you decide not to purchase, the down payment is non-refundable.

4. How much down payment is required? This is a negotiable item. Some owners are willing to accept $1000.00 and some owners may require a percentage of the purchase price or specify a minimum amount. Although the requirements vary, many owners accept 5% as a down payment.

5. The Lease/Purchase payment usually has an amount specified to be credited toward your down payment at closing. This is also a negotiable item. The benefit: Your rent dollars contribute to your down payment and works like a savings, you are not wasting money on rent. Depending on the lender, amount down, the lease payment and your negotiated portion allocated toward down payment...you may not need an additional deposit upon closing.

You may be able to construct your Lease/Purchase contract to assist you in achieving this goal. It would be wise to consult with a mortgage lender to help you set a goal for your down payment needed. The risk: You will not receive the monthly allocated dollars if you decide not to purchase, not any different that standard rent.

6. The Lease/Purchase Price: An important negotiable item. The Benefit: The Purchase price is usually specified in your Lease/Purchase contract which allows you to gain the increase in property value upon purchase. Although markets and time frames vary, 3% per year is a commonly used estimate of increase in property value.

The agreed purchase price allows you to plan for your mortgage with a guaranteed price, while building equity in your ownership. Which of course is one of the main reasons for buying your own home. Equity becomes a valuable financial tool for your future financial needs. The Risk: Although very rare, if the property were to decrease in value, the owner would not be obligated to reduce the agreed upon price when you are ready to purchase.


7. Some additional benefits to a Lease/Purchase:
a. The contract period allows you to "Test" the ownership opportunity and condition of the home, the neighborhood or your length of residency.
b. Some owners may be willing to negotiate tax benefits during the contract period.
c. You can enjoy living in your home now, instead of waiting to save for a down payment or improve your credit.
d. Your selection of available homes is greater with a Lease/Purchase contract compared to standard rental homes.
e. Many lenders are able to treat a Lease/Purchase contract much like a refinance. This means your closing costs to obtain a mortgage could be considerably less. This would be a good question for your mortgage lender.

8. The Lender: Establishing a relationship with a mortgage lender (Taunee English, your Real Estate Equity Investment Advisor) prior to beginning a Lease/Purchase contract would be helpful in planning your home purchase. Many have similar qualification requirements and some may offer more assistance than others. So, if you are serious about purchasing the home a good mortgage lender (Taunee English, your Real Estate Equity Investment Advisor) will help you obtain your goal. Affordably! Hopefully you have found this information helpful; of course the details of a Lease/Purchase vary depending on the owner and the negotiated terms. We offer Lease/Purchase Tenant Services and will be glad to work with you in obtaining your goals. The Lease/Purchase has become a popular choice among owners and future buyers/Tenants. You should always seek professional advice before entering a legal contract.


Please feel free to give me a call if you would like to either do the Lease to Own in A Year or just BUY NOW with NO MONEY DOWN Programs.

Buy vs. Rent Comparison Chart
Advantages
Disadvantages
Buy
Property builds equity
Responsible for maintenance
Sense of community, stability, and security
Responsible for property taxes
Free to change decor and landscaping
Possibility of foreclosure and loss of equity
Not dependent on landlord to maintain property
Less mobility than renting
Rent
Little or no responsibility for maintenance
No tax benefits
Easier to move
No equity is built up
No control over rent increases
Possibility of eviction
Many of the advantages of home ownership have to do with your feelings - pride of ownership; freedom to decorate landscape and maintain the place to your tastes; security and independence. All of these are aspects of control - your control over the property in which you live. But the biggest advantage of home ownership might be financial. There are several financial advantages including equity; tax deduction for mortgage, interest and property tax deductions.