Understanding a lease purchase
There are always inquiries about whether a home for sale in Charleston is available as a lease purchase. But I get the sense that most people don't really understand what is involved in a lease purchase arrangement or why they think it would be advantageous.
Let's clear a couple of things up right away. I don't know whether the late night infomercials are "touting" this as a clever way to buy a house. If they are, well, for starters, you should check your source of information. And while I have never been in a rent to own type of store, my understanding is that if you don't have cash to be able to buy something or enough credit available on your credit card or don't have a credit card, you can go into one of those stores and pay XXX monthly for XXX months and at the end of the agreed upon time, you own that brand new flat screen television or whatever it was you really had to have. You might make 36 payments of $79 totalling $2844 to buy a television worth only $1499 but that's what it is.
A lease purchase of a home doesn't work that way and that's what I think people get wrong so here is a brief review of how a lease purchase arrangement works in real estate.
Basically, the buyer needs to decide that he/she wants to buy the house. Then the rental lease and purchase agreements are negotiated as if the buyer was purchasing within 60 days. Inspections are done and repairs, if needed, agreed upon.
The buyer may then move in to rent for an agreed upon term usually up to one year. There is an agreed upon amount of non-refundable earnest money as part of the "contract to purchase" that will be credited to the buyer at closing as part of their down payment. If for any reason the buyer is unwilling or unable to purchase on or before the end of the lease, they will forfeit their earnest money to the sellers.
That is the general gist of it ... and it only works if the buyer really wants to purchase the home.
So to highlight a few things. This has to be the home you really want to buy. You will still need to put a large deposit down. All of your rental payments during the term of the lease is not applied toward the purchase although a small portion of the monthly rent may be able to be applied. If you don't go through with the purchase, you stand to lose a large deposit.
If you don't have good credit and you think that a lease purchase arrangement is the best way to buy a house, the smarter thing to do would be to rebuild your credit now and buy at a later date. If you don't have money for a down payment, you really won't be able to do a lease purchase either. Finally, and I think most importantly, by selecting homes that are available for lease purchase, you are limiting the availability of homes to select from. And I don't think you'll be able to negotiate as strongly as if you were actually buying a home so you probably will overpay as well.
For a seller, if you are relocating or if you have purchased another home and still have your home for sale, offering your home for sale with a lease purchase option is probably a very good idea since you'll get monthly income during the lease period, have the price set at the time the lease purchase is negotiated (even if home prices decline slightly or heaven forbid, a lot), and more often than not, when the purchase fails to close, you'll gain the earnest money deposit as a bonus.
Bottom line, a lease purchase arrangement is generally very advantageous for the seller and not even close for the buyer.