Is a lease purchase the best deal for you?
Lately several buyers who are looking at Charlottesville homes for sale have been asking me to find homes that are lease purchases. Many purchasers are having a hard time coming up with the money for a downpayment, but they want to be able to get into a new home. Sometimes they have a home to sell somewhere else and are not able to take on a second mortgage until that house sells; at the same time they do not want to feel like they are just throwing away money on rent. A rent to own situation appears to be the magic solution.
A lease purchase is set up so that a portion of the rent each month goes toward the downpayment. In theory at the end of the year the renter will have built up enough to have the full downpayment and be able to take on a mortgage and proceed with the purchase of the home. This all sounds great but...here comes the part that may be the "fly in the ointment".
Only the part of the rent that is actually above fair market rent is allowed to be credited toward the downpayment. It is possible that the buyer could sign a rent to own contract on a home in Lake Monticello for instance with monthly payments of $2000 with $500 being set aside for the down payment and $1500 for rent. At the end of the year it is time for the purchase of the home to close. The buyer is expecting to have $6,000 for the down payment. However at this time the home will be appraised and the appraiser will also determine what the fair market rent is for the home. Suppose he decides that the market rent for that type of home at the Lake would be $1800. Then only $300 each month would be allowable toward the downpayment. All of a sudden the purchaser only has $3600 toward the downpayment.
This eventuality is something that has to be considered when entering into a lease purchase agreement. It is important to go into this type of agreement allowing for the worst case scenario. Do not be tempted to set the rent too low unless you are prepared to come up with more money toward the downpayment when it is time to purchase the home.
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Contact Pam Dent, e-PRO, SRES, NHD, REALTOR®, Real Estate III, Charlottesville, Virginia at 434 960-0161 to buy a property in the following areas in Central Virginia: Charlottesville, Albemarle County, Keswick, Glenmore, Ivy, Crozet, Earlysville, Free Union, Cismont, Scottsville, Fluvanna County, Palmyra, Lake Monticello, Louisa County, Louisa, Mineral, Spring Creek, Orange County, Gordonsville, Orange, Barboursville, Greene County, Ruckersville.
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