How to deal with a tough market
CONSIDERING A LEASE /PURCHASE?
The change in the market has created a situation that has advantages for the both Buyers and Sellers if they consider using a lease/purchase to buy the property they want. A lease/purchase is a formal agreement that gives the Buyers permission to rent a house for an agreed period of time before closing on the purchase of that house at a predetermined sale price. The terms of the lease portion of the agreement specify the responsibilities of the Renter/Buyers towards making payments and maintaining the property during the time the house is leased, as it is still the property of the Sellers. It will state how much of the payment goes towards rent, how much is a security deposit towards maintenance and repairs, and how much goes towards the down payment for the purchase of the house.
Why would this be to the advantage of the Buyers? For Buyers who have little money for a down payment but have decent credit and sufficient income to purchase a house, this strategy can be the one that gets them inside the house when the mortgage company wants them to pay a larger down payment. Another time this can be a helpful strategy is when the Buyer has down payment money but has some credit issues making it more difficult to get financing. Another example would be Buyers who know they will be receiving a lump sum payment e.g. insurance settlement, tax refund, sale of a property in the near future but do not know if it will be within one month or a year. The terms of the lease allows them to rent the house and secure the sale price against appreciation increases for a set period of time.
For the Seller, using a lease purchase may help them through an otherwise difficult time. For example, a Seller may want to consider a lease/purchase as an alternative to being stuck paying two mortgages. Say a person has contracted to have a home built but it is completed before the house is sold and they must close on it when the builder says it is finished. Or the Sellers have been transferred out of town and have to buy or rent a place to live before the house is sold. A lease purchase contributes to their cash flow until their house actually closes, relieving considerable stress.
The recent change in the market has produced another opportunity for astute home Buyers. During the recent housing boom, many new homes were purchased by investors with the intention of turning them over quickly as resale properties. Currently a number of investors who bought these new homes at pre-construction prices are finding the glut of homes on the market interfering with their ability to sell them. As a result, there are a number of brand new homes, never lived in, that are now up for sale as lease purchases.
