Lease Purchases and what you need to consider before doing one.

I have a client who kept insisting on doing a lease purchase. I always ask in my mind why someone wants to do something and what the benefits are. Now, I could be totally naive or just missing the point, but I don't see too many positives of a lease purchase. I do understand that you lock in a price (so depending on the market that is a good or bad thing). I also understand it is a way to get into a house that you can buy down the road when you are ready and you don't have to move again. But what I don't understand is if they aren't ready to buy a house now, why would they think they will be ready to buy in the future. Sure, credit issues are one reason to do it while you are working on your credit, but what happens 1 or 2 years down the road if your credit issues aren't cleared up yet and the lease purchase has come to its closing? From what I have learned the buyer loses the earnest money they put down if they can't close the loan. So, in my mind, why not just lease a place until you are qualified to buy a home?

Some other potential problems or issues a tenant(buyer) should consider before entering into a lease purchase would be:

Repairs: address repairs prior to occupying the property.

Appraisal: Does the appraisal contingency remain in effect or get waived at occupancy? This is a potential risk of losing earnest money.

Sellers payments current: If the seller stops making their payments and forecloses, what does that mean for the tenant/buyer and their earnest money? Will they be able to remain in the home?

Insurance:Both Liability and renters insurance policies need to be in place.

There are many more things to consider. The biggest one I told my client was the loan. Can they even qualify for a loan in 2 years? This particular client checked with a lender and because one of them has a foreclosure on their credit they won't be able to buy anything for 3-5 more years. Good thing they checked before signing the lease/purchase. They would have been out $6,000.

So, my take on it is that it is easier to lease a place, work on your credit issues, save a down payment then when ready, start looking for a house to purchase.