A lease-purchase agreement is one option to consider if you plan to buy real estate one day but lack a down payment for the house of your dreams or want some time to build up your credit score before applying for a mortgage. It is a relatively simple and negotiable contract that can help you make payments towards owning the home over an extended period until you’ve saved enough money to take ownership in the future. If you are doubtful if the purchase will be worth it, at that time, there is no risk of backing out at any time throughout the contract.
However, hurrying to sign the lease out of excitement often leads to mistakes, warns Attorney Tommie Harsley. It is essential to study the clauses included in these legal papers. Here is a glimpse of a few areas.
In your leasing agreement, make sure you understand all the incentives available for negotiating payments – which can usually range from hundred dollars to 20% of the property value set aside for a down payment. It can be above-market rent, but one part will be funding your home’s down payment. Ensure to consult a real estate lawyer before signing any lease agreements, so you don’t miss an opportunity to plan for the property’s purchase in the future correctly, advises Attorney Tommie Harsley.
Find a lender for a pre-approved mortgage loan. Speak with your lender about how rental payments will fund the home purchase. Get an estimate of the amount you’ll need for the down payment and closing costs, including several thousand dollars. Use your time as a homeowner to prepare financially before buying the house. Clear any debts on you, stay away from new credit cards, and make sure all the monthly payments are up-to-date.
There are two main ways to buy a home: setting the sale price in advance or sitting tight and hoping that the price will be more favorable. One factor to reckon with is that prices have an awful way of fluctuating, so it might be advantageous to know that the cost of your acquisition can be adjustable accordingly before signing on any dotted lines. When prices are increasing, you’d want to fix a price. Since rates could slide also, you may wish to include contingency clauses into your agreement(s) to protect yourself from unpleasant surprises, reminds Pastor Tommie Harsley.
A lease option can be the right decision if you don’t have enough cash to outright purchase a home but have enough money to cover the initial and last month’s rent. Not only will you have to make sure that this arrangement is indeed appropriate – both in terms of fees and legal obligations – but you’ll be responsible for rent payments on top of insurance coverage and other expenses. You’ll also have to pay a hefty and non-refundable option fee. If all this seems steep, you can save up more money for an upfront down payment or work on your credit score by paying off outstanding debts before getting ready for homeownership.