There is a tendency for former Denver homeowners who have unfortunately experienced foreclosures or short sales to get anxious and try to find ways to get back to homeownership right away. I just read this Trulia blog about rent-to-own, or lease-option. There are several reasons that I don’t normally consider this the best option for most of the situations I have seen.
1. The advantage is almost always to the Seller. The Seller basically has nothing to lose. The Buyer has much to lose and if the lease agreement is not written correctly can lose all of the down payment and additional amounts paid monthly intended to go toward the purchase.
2. The Seller gets a significant down payment up front and higher rent per month that all or part is supposed to go toward the downpayment when the lease agreement ends. If you change your mind, lose your job, still don’t qualify at the end of the lease, or a myriad of other curcumstances; you can lose all of this paid money.
3. There are some investors and homeowners offering lease-option who have no intention of selling the home. They get as much money up front and per month as possible and look for ways to cancel the lease agreement. That way they can get another unsuspecting buyer in and start this cycle all over again.
4. In most cases it only takes 3 years for a lender to qualify you again for a home loan after foreclosure or shortsale. The best scenario is to get a rental than works for you with as low a payment as you can find to meet your needs. Take the 3 years to build up an excellent credit rating and save the money you would have spent on lease-option in an interest bearing account.
5. The problem in recent years is getting locked into a lease-option with a stipulated final purchase price that doesn’t appraise if you do make it to the time you can purchase the home. Also, you cannot be guaranteed what the interest rate will be at that time. If you ever do consider this rent-to-own situation have a Realtor help you with the research. Then get a good Real Estate Attorney to write the lease and not the owner.
Robert McGuire – 303-669-1246 http://rmcguire.yourcastle.org