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Lease with the option of purchase--good or bad idea and what should we watch out for?

My husband and I live in Texas. We are currently looking for a house to rent and I stumbled upon a home for lease with the option to purchase. From what I have read I understand that the legislation regarding these type of agreements or selling tactics has been changing and I am having a hard time deciding whether or not it's even worth our time.
  • April 05 2012 - Denton
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Answers (7)


If you were selling your home, why would you enter into a lease to own if you could sell your home immediately and walk away??

 

Answer: You would not.

 

 

Many "lease purchases" are scams,  be careful

  • April 07 2012
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Profile picture for Jla0928
Thank you for all the wonderful advice. We have decided to not even bother with the lease to own deal. While we really like the house, we have excellent credit and would much rather miss out on this property and do things the "right" way. Better to be safe than sorry and good things come to those who wait, right? Thank you again!
  • April 07 2012
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Profile picture for sunnyview
Lots of good advice on this thread. The one thing I would stress is to get an attorney before you sign anything. Lease to own on real estate is not a easy contract to write well. Many of the contracts do not have the teeth or the protection that you need as buyer to protect your money or the extra that you pay in rent.

I am not big attorney fan or a fan of lease own, but if you decide to do it, you need an airtight contract and you need an independent agency/title company holding the additional money that you are putting toward the purchase. You also need a provision about what happens if repairs are needed, who pays the taxes, what happens if the house does not appraise when you go to get a mortgage etc.
  • April 07 2012
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I second Wetdawgs.

The thing to "watch out for" is that you let the enthusiasm of the process take over your good judgement. Why would you want to even consider buying this house if it wasn't for the attractive terms and the intrigue of the process? If you could afford to buy a house, would you go into debt for thirty years to buy this one?

So Dorothy's solution is the correct one - you want to rent it, rent it. You want to buy it later, that's another story, treat it as such.

Because as Guy says, the seller can run off with your down payment and stop paying the mortgage, and if they're in bad financial straits themselves, well, you can't wring water from a stone, can you?

All the best,
  • April 07 2012
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If properly structured and approved by an attorney, there is no problem with a lease option on the buyers side. It's the seller side where the regulations are onerous and extremely burdensome. One of the issues you, as a buyer, should be concerned with is ensuring the underlying mortgage (if any) is being paid timely. Otherwise, a seller can take your downpayment funds and monthly payments and keep both while allowing the underlying mortgage to go into foreclosure. Bottom line is have everything agreed to in writing and have an attorney review all documents prior to signing. If can save you thousands of dollars and years of frustrations by doing it right from the get go.  
  • April 07 2012
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The failure rate is very high; in the neighborhood of 80% nationally.  I highly recommend that you have an attorney review any agreement prior to signing.  A nominal fee for a one hour consultation could save you thousands in the long run.
My usual recommendation is to do a straight lease.  If you decide you want to buy and the owner wants to sell, you can mutually agree to terminate the lease and enter into a purchase and sales agreement.
Dorothy
  • April 05 2012
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Profile picture for wetdawgs

My humble opinion?  A very bad idea, make that a very very bad idea.

Owners who will consider rent to own are very rare, so it will cut down your options considerably.   I consider it much smarter to spend a year or two working on improving your credit and (if necessary) saving up a good down payment.

 

Some features of rent to own:

 

1.  Down payment required - often substantial (say 10%) and is non-refundable if the potential buyer doesn't purchase.

 

2.  Monthly rental is above fair market rent, with the only amount going to purchase is the amount above the fair market rent.  This is also not refundable.

 

3.  If not qualified for financing at the agreed upon  time and price, then you lose everything. 

 

4.  The price is agreed upon at the beginning of the contract, and housing prices may still be decreasing.

 

5.  You still depend on the owner to pay their mortgage.   If they fail, you lose.

 

Rent to own is most often a losing proposition for the buyer.  One poster often comments "where delusional sellers meet unrealistic buyers".

  • April 05 2012
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