Lease Purchase for Home Buyers

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Few people would disagree that it’s been a tough five years for homeowners and those who want to own a home. The real estate and mortgage crash that began in late 2006 has resulted in millions of foreclosed homes and a great many homeowners who still own their home but owe more on it than it’s worth (under water mortgage).

The other very detrimental effect on those who would like to buy a home now is that credit and morgages have become a lot more difficult to get. Mortgage lenders are very careful and they’ve tightened qualification requirements a lot. They have also increased down payment requirements, and millions who would like to buy simply can’t qualify or make the down payment.

So, we have homeowners who would like to sell but can’t because they owe more on the mortgage than the home is worth, and we have would-be buyers who really want to own a home but can’t qualify or pay the required down payment. There’s opportunity in these two groups coming together.

Using a lease purchase agreement, a buyer will lease a home with the option to buy at some stated date in the future or before. They’ll pay the seller a lease option fee which is always far less than a down payment, and they’ll take over the payments of the seller as a lease rental payment. Of course, the tenant/buyer will not want to do this on a home far underwater on the mortgage, but there are many that are close to what the home is worth, but the owner still can’t sell due to real estate commissions and closing costs.

The tenant/buyer has the right but not the obligation to buy at the end of the term, usually five years. They can also exercise their purchase option early if they want. This is a win-win for both parties, as the owner can move on, maybe leaving the area for a better job. The tenant buyer can rent the home they intend to own, and if things work out, they’ll build better credit or save a down payment during the lease period. An attorney should be involved in this, so take care to make sure both parties are informed.

Doug Clark
Star of Spike TV’s FLIP MEN
RealtyTrac Education Partner
#1 Real Estate Coach and Mentor Worldwide
Follow @demo_doug

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About the author

Doug Clark

Star of Spike TV's FLIP MEN. RealtyTrac.com Training Partner. #1 Real Estate Trainer Worldwide

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