Profile picture for heatherkerley

I would like some advice on Lease/Purchase when selling a home. Pros? Cons?

My husband and I have 2 homes for sale. One is our primary home, and the second is our rental property. We do have both homes mortaged, and have had a hard time selling them. We are selling because both homes have a ton of equity. We could sell both homes and pay cash for a home... On both homes we have had people interested in doing a Lease/Purchase. I am unfamiliar with this process and would like to know Pros and Cons. Thanks in advance!

  • September 19 2012 - Knoxville
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Answers (8)

Profile picture for hpvanc
"We do have both homes mortaged."  If you decide to pursue option, check with your lender, your mortgage notes may become due and payable immediately upon the execution of the contract.  Typically this is only an option for sellers without mortgages.
  • September 20 2012
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Profile picture for Ofe Polack
Lease with option is undergoing a renaissance, since there are a lot of buyers who had a short sale or foreclosure and cannot purchase for a few years.  When the buyers hear how it works, most of them will tell you they do not have the downpayment, it should be a minimum of 10% non-refundable.  Then on the monthly rental you will add a surcharge to apply toward closing.  The lease should have a beginning and a definete end, at which point the buyers close on the property.  Few of these leases come to closing, so the buyer looses his deposit.  You will need a good real estate attorney to write you the lease to purchase option.  The downfall for you is that you will be dependent on that closing to do what you want to do.  Conversely, if you have "a ton of equity" on the properties, why don't you reduce the price and see if you can sell them instead of lease with option.  Note, I would have the buyers go through a lender that you know to have them pre-approved, that way you will know when will they be able to purchase again. Good luck!
  • September 20 2012
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If your goal is to buy a house with cash I wouldn't even consider this option.  You will be moving away from your housing goal only to fallow a more risky route.  A lease with option to buy adds risk to both sides of the table..  The buyer also has elevated rick in the transaction. [link deleted by Zillow  moderator. Please see our Good Neighbor Policy for posting guidelines]
  • September 19 2012
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The structure is generally that the leasee gives you the normal market value rent and you also collect an additional amount to be applied to the purchase at a future date.  The value of your home today may change, so the contract may not make sense to one or either party when the lease period is up.  They are very tricky and as mentioned before, an attorney can advise you as to how you want to structure the lease/option.  Sounds like a normal sale is the way to go.
Good luck to you,
Suzanne Looker
  • September 19 2012
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You will typically get a lot of people that want to do a lease/purchase usually because they cannot qualify for a mortgage for various reasons of which the most common is bad credit.  It is obviously more risky to go this route.  If you feel compelled to do a lease purchase I would recommend getting a substantial down payment to protect your interest and make the buyers have a stake in the transaction that they would not want to walk away from.  Best of luck.
  • September 19 2012
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Profile picture for wetdawgs
Lease purchase tends to be a situation where people who can't currently qualify for home purchase (for many reasons) try to buy a home.  

Some of the downsides:

You are basically a landlord until they get financing.   You will not be able to tap into your equity, and you will have to deal with all the hassles and joys of being a landlord.

Chances are very good that the renters will not close the deal.   The percentage that actually close are very low.

As you wish to tap into the equity to be able to purchase a new-to-you home, this does not sound like a very sensible solution for your current situation.   When a house doesn't sell, look seriously at pricing. 

If you go against my humble opinion, get an attorney involved in the contract.  Ask for a substantial (say 10%) non-refundable down payment and charge fair market rent (for you) plus say $100 to $200 extra that goes towards the purchase price (also non-refundable).  Establish a purchase price today, and a deadline for them to obtain conventional financing (two years max).




  • September 19 2012
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Profile picture for heatherkerley
Thank you Allison!
  • September 19 2012
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I would recommend speaking to a lawyer. They are going to be the most familiar with the contracts you would need.

Other than that, unless either of these potential renter/buyers has a large sum of money to give to you upfront - you would not be accomplishing your goal of purchasing a different home in cash.

Good luck!
  • September 19 2012
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