In the current climate buying a home has become far more difficult for most people due to lack of mortgage finance, difficulties in raising a down payment, and poor credit scores. For those that aspire to buying their own home this is a devastating combination that could put this dream out of reach for their foreseeable future. Fortunately, there are solutions for buying that first home, even in this investment climate.
As a consequence of these same conditions where buyers may be "locked out" of purchasing, there also exists a situation where homeowners that want to sell their property cannot. In many cases price reductions have driven sellers out of the market with choice properties even, because low selling price and other cost factors in the deal make it unfeasible. And here is where putting two lose situations together can equal a big win.
A lease option is something that could effectively eliminate these issues for both parties. It is basically an agreement to lease a home and purchase it within a specified time period. The buyer/leaser agrees to a monthly payment that is higher than the normal rent to cover the down payment and also pays a deposit at the time of leasing. A lease option agreement actually has a great number of advantages for both sides of this seller-buyer equation - particularly in this market. Ideally, the big win-win should be easy to accomplish given the parties are sincere and the agreement is firm.
Whilst lease option seems to be a good idea in principle, there are pros and cons that need to be considered by both the landlord/seller and the leaser/buyer, and some of these are as follows:
Pros and cons for sellers
Pros and cons for buyers:
As you can readily see, even in a depressed housing market buyers and sellers can often come to terms via "out of the box" thinking and cooperation. A lease option, with proper safeguards for both parties in place, is one excellent way to put buyers and sellers together. Expect to see more of these types of arrangements as prices continue to decline. Next we need to see what the broker's role can be in these types of agreements.