18 Apr Try Before You Buy – the New Way for Potential Homeowners?
With banks being so stringent about homeowner loans, consumers are finding more and more that they need a back up plan. Enter the growing popularity of the lease to own option.
Lease to own requests are most common in hard-hit markets where foreclosures have driven down home prices and sellers can’t or don’t want to come down anymore on the asking price. If the house isn’t occupied it’s an opportunity to create some revenue for the seller.
But while sellers seem more likely to consider lease-to-buy arrangements, most won’t advertise it. Agents are reluctant as well, as it delays their commission.
What are the risks?
The renter-buyer could back out of the deal. For that reason, it’s important for home sellers to understand the difference between a lease option–where the renter simply has the option to buy down the road–and a lease purchase agreement, which requires that the renter put down anywhere from .5% to 2% of the sale price in earnest money or pay a monthly rent premium with a share of the rent going toward the purchase price. The sale price and timeline are also spelled out in the contract.
If the renter backs out, the homeowner does get to keep the earnest money, however they may not be able to get the renter to move out in order to put the house back on the market.
If renter-buyers don’t buy the home they’re usually out earnest money, unless they convince a homeowner to do a lease option with no strings attached. An agreement like that usually signifies a seller’s desperation, which would warrant further questioning regardless.
Conversely, what if the homeowner stops paying the mortgage? If the homeowner is foreclosed on, buyers of course have a claim against them, but will be competing with other creditors.
Potential lease-to-own tenants should at minimum ask for proof that the owners are current on their mortgage.
Strict loan requirements and rising rents – do you think least-to-own is the new growing trend? Is it a positive or negative trend in your opinion? Tell us by commenting below or post your thoughts on our Facebook page!