FAQ 1 - Should I Lease With an Option to Buy?

I am often asked by buyers if my listings are available for lease option or if I would help them locate a lease with an option to purchase.  First, for those who aren't familiar, a lease with option to buy means that a prospective home buyer would identify a property where the seller is willing to defer the purchase until a later date, usually one to two years, at a pre-negotiated price and terms.  During the one to two year waiting period, the buyer will lease the home, usually after making a sizable deposit and will occupy it as a tenant until the sale closes at the end of the lease term.

While our current market conditions have produced a few of these properties, I generally do not recommend this type of purchase.  Here is why:

Usually, if a seller is willing to do a lease with option, it is often because they have overpriced the property and cannot or will not sell it at market value.  A buyer agreeing to purchase a property this way may be committing to overpaying for the home.  Typically, a deposit of several thousand dollars is required, and would be lost if the buyer doesn't go forward with the purchase at the end of the lease term.  I am told by a lender friend that, statistically speaking, less than 2 out of 10 buyers are able to qualify for a mortgage at the end of the lease term when the reason for the choice to lease with option is that the buyer is trying to find a way to buy a home with bad credit.  In addition to these risks, your selection of properties is greatly limited to the small number of sellers who are willing to lease with option to buy. 

I generally recommend to my clients who are either working on credit repair or saving down payment to commit to renting for a year or two while working with a reputable credit repair specialist, such as Credit Repair Resources and get credit back on track to buy a home.  After a period of several months, if the client follows the plan and does the work that they are instructed to do, they will have cleaned up their credit profile and will be able to obtain mortgage pre-approval.  At that point, the client will be in a position to choose any home that suits, within their budget.    

If this recommendation doesn't fit your current situation or if you have more questions than this post addresses, please contact me directly at mstanifer@gmail.com or (440) 391-1304.  I am always happy to answer your questions and am available to help you locate a property to lease or buy.