Prospective Home Buyers sometimes get very excited about buying a home . . . they imagine a price point and begin their search.
This is FUN because when a Buyer shows up at any Open House or calls from a “For Sale” sign, she gets LOTS of attention. Real Estate Professionals are infinitely available to work with motivated Home Buyers.
Home Buyers are the fuel that keeps things moving in the market.
Every so often, the “Fun bubble bursts” when the Real Estate agent explains and adheres to the principle that his job is to manage the process and the Buyer’s job is to make the decisions . . . and so he (agent) brings her (buyer) to a Mortgage Loan Professional who does an initial consultation to determine qualification.
Discovery of “High Ratios” or “Questionable Credit” or “inability to show job stability” suddenly stops the train.
These days, Mortgage Companies aren’t very warm to weird deals. It has been said many times that “Out of the box thinking” with respect to structuring House Financing was a big part of what got us here (Economic Turmoil).
The quandary now is that the Prospective Buyer STILL wants to move. She has “The Moving Bug” . . . and she STILL wants to BUY because she is convinced that home-ownership is a sound personal financial decision . . .
So she begins looking for creative ways (certain that the Lender is just being “too conservative”). Other lenders tell her the same . . .
and then . . . one day in a casual conversation with a friend, the notion of “Rent to Own” comes up. Surely, hungry House sellers would rather get SOME income from their vacant properties and would agree to a rent/lease scenario with an option to buy in the future . . . and they’d probably even allow a portion of the rent to be reserved to use as down-payment when the purchase happens.
Sounds great, doesn’t it?
This CAN be done and has been done successfully . . . The
BEWARE part is that when it goes awry, it’s never pretty.
So . . . Before you dive into a Lease Purchase scenario (whether as Buyer or Seller) consider the following potential pitfalls:
- How will you determine a “fair rent” and deposit and percentage of equity reserved?
- What happens if Buyer falls out of love with the house and/or neighborhood after living in it for a few months?
- What happens if the Buyer has a financial “event”? (loses job, files bankruptcy, etc)
- What happens if the Seller has a financial “event”? (loses job, files bankruptcy, etc)
- How do you determine to Purchase price in the future?
- What if the house is worth more (or less) than the agreed upon purchase price in 1 or 2 years? Will the Seller feel “cheated”? . . . Will it appraise?
- What happens if the Buyer’s financial issues don’t correct during the lease period and still cannot get the loan when it’s time to purchase?
- What happens if things (air Conditioning, plumbing etc) break during the lease period?
- What happens when life happens in anyone’s life (Birth, Death, Divorce, Taxes) thereby upsetting the applecart?
My opinion (take it for what it’s worth) is that Rent to own and Lease Purchase are temporary “solutions” for “Problems that merit more permanent solutions”.
If you’re a Seller and cannot sell the house for what you feel you need, LEASE it. Use a Leasing SPECIALIST who does this EVERY day and let that person handle the details. When the market improves, SELL the house.
If you’re a Prospective Buyer in this dilemma, RENT the house and if you still love it at the end of your lease, and you are then qualified to buy it, BUY the house.
These are not good times to be dancing in the gray areas . . . Too many moving parts for Lease Purchase to make sound sense.
“Daddy’s advice” . . . If you cannot afford it, DON’T BUY IT!
We at Pareto Realty in Nashville, TN are poised and ready to consult with House Buyers and Sellers to help them make sound purchasing and selling decision . . . Inquire within!