The fact of the matter is that the market is slow and some houses are sitting on it for longer than usual. Some sellers are upside down on their loans, some have to move due to job relocation and don't have the luxury of paying two house payments, and the house value keeps going down the longer it sits on the market... What's a seller to do?!
On the other hand you have buyers that can't quite meet the credit requirements or the downpayment is just a little short of what is needed, closing costs are more than they can afford... you get the picture. Lease option might be a good solution to bring together the seller and buyer in need.
Seller's benefits:
- The rent will hopefully cover the entire mortgage payment and releive some of the financial strain.
- Riding the market to hopefully a better one and be able to recover some of the lost value of the house.
- The downpayment the buyer will put in, will hep provide additional cash for moving out if still in the house.
- The buyer considers it his/her home and takes care of the place to include the maintenance.
Buyer's benefits
- Renting a place that eventually will become your home - no need to move again
- Has more flexibility on small improvements and pet allowances than a rental
- If you need extension time, it is very likely that you can work with the seller on getting an additional 1-2 months till loan is approved.
However, there are things that the seller should keep in mind and be cautious about.
- DO NOT do a very long lease. Start at 12 months, preferably 6 months.
- Do not offer any closing costs paid to buyer if you have to wait a year to cash out of the deal.
- If you have to extend the lease for another 6-12 months, make sure you adjust the price to reflect appreciation, also charge an additional $1,000 non-refundable fee for having to wait another year.
- Remember: You, the seller are tied into the contract. The Buyer IS NOT. They can walk out anytime. That is why it's called an OPTION!
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