Considering
a Lease-Purchase Option
Lease-Purchase Options can be attractive
for potential buyers with cash flow and/or credit problems.
Under such a plan the buyer and seller enter into a lease
agreement with an option to purchase the property within a
specified period of time, generally within one to three years.
There is no shortage of home owners
that can relate positive experiences with lease-purchase options.
Unfortunately, there are nearly as many would-be home owners
with stories of dreams dashed. If you are considering a lease-purchase
option you are more likely to find yourself among the former,
rather than the latter, group if you do your homework first.
Some things to consider:
- Talk with your credit union representative
or housing counselor if you are considering a lease-purchase
option because you can't save the down payment amount
required for purchase. There are a number of programs
and incentives available in most communities. One may
be just right for you.
- Understand the financial obligations involved.
Sellers often set lease amounts higher than market value.
You will likely make monthly payment to cover the mortgage,
a down payment contribution and possibly even a little
profit for the seller. The benefit is that you can save
a little each month toward your down payment. Be careful
though, there are drawbacks. If you find after a few months,
or even a couple of years that you can no longer afford
the lease payment the agreement may be considered breached
and you will lose all the funds that you have contributed
toward your down payment. Review your financial situation
closely to determine if the required payments will be
manageable over the long-term.
- If poor credit is driving your interest
in the lease-purchase option, get credit counseling before
you proceed. It is important that you develop and commit
to a plan to clear any blemishes while you are leasing
the property. Your money will not be refunded if you are
unable to secure a home loan when the time comes to exercise
your purchase option.
- Beware of unprincipled sellers. Review
and understand the agreement completely before you sign
it. You may even want to have another person review the
agreement for good measure. Don't allow yourself to be
rushed or pressured into a decision, take your time and
ask questions until you feel comfortable.
- Keep a copy of your contract as well as
a record of all payments. In the event that discrepancies
arise, you will need to substantiate any claims you make
with verifiable documentation.
- Do not sign a contract with blank spaces.
- Make sure that the contract clearly states
who will be responsible for such things as maintenance,
lawn care and pest control throughout the lease term.
Don't despair. If this deal doesn't work
out there will be others. It is better to pass if you are
uncertain then it is to sign on for a nightmare.
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