Lease Purchase Requests, Do They Really Just Need A Rental?

The increase in foreclosures and short sales has forced an increase of people seeking what they call lease purchases. I get multiple email requests on my listings inquiring as to whether or not the seller would consider a land contract or lease purchase. When I probe a little further, I find what they really need is a rental.

I would say 99 percent of these inquiries are coming from people who don't have any money to put down, they haven't spoken to a lender to see how far out they are from realistically buying, and they don't understand what a lease purchase actually is.

A lease purchase is really a purchase contract written with an extended closing date. The buyers need to be close to qualifying for a loan. Many of them already qualify to buy but don't want to yet for various legitimate reasons. Maybe they want time to save more of a down payment than they have currently. Maybe they are in the process of selling a home and they do qualify for both mortgages, but want some time to close on the first home. In this case, they may be able to negotiate a smaller monthly lease amount than the new mortgage would be. This allows them a buffer while selling their current home. If their first home hasn't sold when it comes time to close this contract, everyone involved knows they will qualify for both homes and can go ahead and fulfill the terms.

If the prospect calling tells me they are going through a short sale now, filed bankruptcy a year ago, or were just foreclosed upon, I will point them in the direction of a rental. These folks generally do not have the down payment required to even secure a lease option.

A lease option is not a purchase contract, but a lease with the option to buy at the end of this lease. Usually the owner will require a pretty hefty, non-refundable, down payment. Lease options are sort of a try-before-you-buy option. Personally, as a buyer, I would rather rent than do a lease option with such a large down payment. But maybe you know this is the house you want and you have a little way to go to improve your credit score. Or maybe you need help saving for a down payment. Many times these sellers will apply a portion of your monthly lease payment to a down payment fund.

Land contracts are a completely different beast with many legal issues attached. I would suggest doing your research before getting involved in a land contract. I've met at least one person who told me the person they signed a land contract with didn't keep up with their mortgage payment and lost the property to foreclosure. All of the prospective buyer's down payment and rent payments were just gone. So be careful and do your homework. Hire a lawyer!