What's a lease-purchase?

Due to the responses to my last post, I suppose I need to explain exactly what a lease-purchase is. : )

A lease-purchase is basically a lease for a period of time, usually 2 to 3 years, after which the lessee must purchase the house. It is perfect for a new home buyer who has not built up enough credit to obtain a mortgage, or for someone who has a bad credit history, but is in credit counseling and working on credit repair. It would also be a great option for someone that is new to an area. Rather than buying a home and potentially having to move, a lease purchase is much easier to walk away from than a mortgage. For sellers, it is a way to get out of a home that can't be sold in this market. For example, someone who owes more than the house will sell for, or a difficult property that is not selling because of location, an odd floor plan, etc.

Generally a deposit of anywhere from $2000-$5000 is required, depending on the price of the home, and is put towards the final purchase price of the house. The owner of the home uses the deposit as a security savings in the event that the deal is to fall through. This covers any repairs that need to be made or the mortgage during the time that the home is vacant. If the buyer is to walk away from the house during the lease, the seller gets to keep the deposit, unless otherwise noted in the contract.

The monthly note can be done several ways. Obviously, we always hope to at least get the mortgage covered with the monthly rent. It can be a set price with a certain portion of the rent going towards the final purchase price, or the rent can be set based on an amortization schedule just like the bank, which will give you the remaining balance to be paid at the end of the 2 or 3 years. The interest rate is typically a little higher than most mortgages because the rent must cover taxes and insurance as well.

The purchase price is probably the best part for sellers. Because the seller is doing the buyer a "favor" the price is not as negotiable. So, if the seller wants $150,000, then typically they get $150,000 because they can. Buyers know that they don't have too much negotiating room because the seller will move on to the next offer. (On my most recent lease-purchase listing, which was outside of the city limits, I got at least 2 calls a day with interested and willing buyers.) It's not a bad deal for the buyer either because by the end of the 2 or 3 years, the value of the house may rise beyond what they plan to pay for it.

Who you choose is more valuable than what they offer. I always try to connect sellers to people who I know, or clients of mine that I am comfortable with, to ensure that the seller is getting the best buyer. I would not recommend taking the first offer without considering the financial status and credit history of whoever is making the offer. It would be great to require that proof of income, a credit report, and proof of credit counseling or repair, accompany all offers.

And last but not least, the commission....because I know that's what my sellers are most concerned about...is better than you think. For me personally, I only get paid if you get paid. So, I charge a small (usually 6%) commission on the deposit and rent...then when the house sells in 2 to 3 years, I get commission on the final sales price. How can I afford to work for so cheap? Because I know I will get paid later...which is insuring my future income. I have absolutely no problem doing this to help my clients. Usually they only stay on the market for a very short period of time, which cuts down on the amount of work that I have to do.

Who is a person that you know who owes too much on their house or is having trouble selling their home? Do you know a person who would love to buy a home, but hasn't built up their credit yet? Please contact me with their name and situation and I promise they will get the excellent customer service they deserve.