Tuesday, April 12, 2011

Is Lease/Rent–To–Own right for you?

People who are in the rental market because they don’t have the funds for a down payment on a purchase, sometimes look to Lease-To-Own plans.    In some circumstances, these help build some additional  funds toward a future purchase.  They also can “lock in” a specific property that you want to buy in the future.  BUT, there are some important questions you need to consider:
·         What is the required down payment for the Lease-Option program?   In what circumstance can that down payment be lost?   It is common for a Lease-to-purchase agreement to stipulate that the down payment is forfeited in the case of any delinquent payments.   A change in employment or marriage status or other personal changes can put that money at risk.
·         What is the purchase price of the home at the time of purchase?   In a market as volatile as the past three years, this can be a major issue.   Generally the price must be at or below the appraised value at the time of purchase.   In a changing market that is very hard to predict.   One way to alleviate this problem is to state the selling price as an amount over or under the then-current appraised value.   Be aware that if the value goes down substantially, the owner will not want to sell.   And if it goes up a lot, you may not be able to finance that price.
·         Is the owner charging above going-market rent to pay for the accrued funds from each month’s rent? If so, you may be better off renting at a competitive rate and depositing the difference in savings. 
·         Will this really be the right house for you several years in the future?  Changes in taste, styles, family situation, employment, neighborhood environment and many other things might cause you to make a different decision.   In most lease-to-purchase agreements, you will lose your down payment or at least give up the benefits of the agreement if you back out.
Lease To Own CAN be a path to home ownership.   Just go into it fully aware of the issues above.  Then move forward if it still makes sense.