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Lease purchase: Is it for you?
Wednesday, August 20, 2008 • Posted August 19, 2008 10:00 PM

The good news: You just landed your dream job that’s paying you more than you asked for in the city your family has always wanted to live. The bad news: You’re supposed to start the new gig in less than a month, but your current home hasn’t sold. You’re running out of time. What to do? Should you lower the price? No - you’ve had to do that once already. Rent out the house? Maybe, as a last resort. What else is there? Wait a minute. Why not consider offering lease-purchase terms to entice a buyer?

What is a lease-purchase agreement?

Unlike a lease option, a lease purchase is a true sale, but includes a delayed and pre-determined closing date that usually falls six months or more in the future. And it’s perfect for when a seller needs to move immediately but the house hasn’t sold just yet. It’s also useful for an otherwise strong buyer who needs time for his or her house to sell, or to accumulate additional time on the job in order to qualify for a mortgage loan.

As with any sale, a purchase agreement is drafted and an earnest money deposit is taken. If the buyer doesn’t close the purchase, any and all of the default provisions listed in the purchase agreement would apply, including the loss of earnest money deposit - just as with a traditional home-purchase agreement. Because the buyer will be in the house before the deal closes, it’s smart to get as much earnest money as possible. It’s a great motivator to close the sale and can help cover property repairs required prior to closing.

Determining the lease payment

Before you head off to that dream job in your dream city, though, it’s your responsibility to determine how much to charge a buyer in monthly lease payments until closing. This can be just enough to cover your current mortgage payment, or can be similar to what properties like yours are renting for. Or, the payment could be equal to what the buyer’s new payment will be once the sale is closed - another great motivator for the buyer to close!

In a lease-purchase situation, the seller will usually allow a certain amount of the buyer’s monthly lease payment to apply to lowering the sales price of the property, or help cover closing costs. While it’s a great incentive to attract a buyer, make sure that the buyer checks with his lender to ensure that monthly credits can apply under the financing program he wants. These payments might be viewed as buyer incentives under some loan programs, and the amount allowed may be capped or disallowed entirely.

Crossing t’s and dotting i’s.

Even though your family is already busy spending your new raise on the new house in the new city, and you are anxious to move before going broke, make sure that you walk through the property with the buyer before he moves in. Ideally, you’ll also have a third party with you to help, such as your Realtor.

Note the condition of the flooring, carpeting, and walls, as well as the general condition of your home’s exterior and yard. Also note any appliance or fixture that isn’t working. Take lots of pictures and document everything. Make a copy of your inspection notes for the buyer, and have him concur by signing both copies. The walk-through will serve as a benchmark of the property’s condition at the time you vacated and won’t allow the buyer to later claim he wasn’t informed about the condition of the house.

The last word.

There is one important caveat to consider when using a lease purchase: Before you accept the contract, make sure that the buyer is pre-approved for the mortgage he wants. Any experienced Realtor will tell you this is a crucial part of the homebuying process - no matter what kind of purchase. It will also give you peace of mind. You’ll also want the Realtor and the lender to give you a quote on the approximate amount of closing costs you can expect to pay at closing.

Even though a lease purchase can help you avoid having to rent out the house, burdening yourself with a marginal buyer who can’t qualify for financing will most likely prove far worse (and more time-consuming) in the long run. And that will certainly tarnish the glow of your new job in that great city.

For services, contact RE/MAX Genesis at830-833-2000 or lightfoot.com.

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