In a perfect world every home purchase would be a 100% cash deal. But since our world is anything but perfect, at times we must get creative with home financing. One method that is becoming more popular is the lease-purchase arrangement.
Simply put, the buyer will enter into a contract to lease a property until such time that they can purchase the home using traditional financing. Though it sounds simple, the Devil truly is in the details. Here are some things to be aware of going in.
1) Will my credit improve enough during the lease term to purchase the home-- Everybody thinks their credit will be better next year. By some miracle, years of accumulated debt/ poor financial decision making will suddenly improve. Improvement can occur, but be warned such change takes hard work and a commitment from the entire family.
2) What if lending standards change-- The only constant in real estate is change. The credit requirements in 2007 are VERY different that what is needed in 2011. Your credit will be subject to the standards present at CLOSING, not when you go into lease-purchase.
3) What happens to my deposit if I can't close the loan-- Home sellers take on a high degree of risk when accepting a lease purchase. As such, large deposits are typically necessary. On a 150,000 dollar home I have seen deposits range from 7,500-10,000 dollars. IN each case, the buyer would forfeit the entire deposit if the loan did not close. Are you prepared to walk away from 10,000 dollars if you can't buy the home?
4) What Happens if the house burns down during my lease-- The buyer would be well advised to have renter's insurance for their contents during the lease. In most cases such insurance is a requirement under the lease agreement.
Some Tips for lease purchasing a home...
1) Get A home inspection before moving in--All inspections need to be done prior to moving in. Remember, that deposit is typically non-refundable so hire a professional!
2) Have a real estate attorney write the agreement-- The standard Louisiana Buy Sell Agreement in my opinion does not adequately address such arrangements. Pay an attorney to write the agreement and go over it with all parties PRIOR TO SIGNING. Remember, the only dumb question is the one you don't ask!
3) Work Closely with a local lender if you have credit issues-- A local lender will put you on the path to homeownership. Follow their advice to the letter!
4) If you have any doubts, don't do it-- Is there a job transfer in your future? Perhaps a baby is on the way? If the situation does not feel right don't sign on the dotted line.
Ready to purchase or sell a home in Central Louisiana? Give Doug Rogers with Bayou Properties Realty a call today at (318) 613-1994. Search the MLS for free at www.LouisianaHouseHunter.com
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