How does a Lease/Purchase work? This is a popular question and the answer may interest you... First, notice the term: Lease/Purchase. The two words almost joined is a good visual of how the contract works.

1. The Lease/Purchase contract allows you to provide evidence of your ability to pay the mortgage. This is especially helpful if you need help in qualifying for a mortgage. Some examples of not qualifying for a mortgage may be:

          a. If you have had credit problems in the past.

          b. If you have a shared debt with another person on your credit report.

          c. If you own your own business for less than 2 years.

          d. If you have a higher debt to income ratio.

          e. If you are just starting out and have no credit history.

2. The Lease/Purchase allows you to use the payment history of the contract term as evidence of your ability to pay. Many mortgage lenders have programs which consider this in your mortgage application.

3. The down payment is normally applied toward your down payment upon closing of the purchase loan, instead of a standard deposit on a straight lease. The benefit is: Your money is applied toward your investment in your new home. The risk is: If you decide not to purchase, the down payment is non-refundable.

4. How much down payment is required? This is a negotiable item. Some owners are willing to accept $1000.00 and some owners may require a percentage of the purchase price or specify a minimum amount. Although the requirements vary, many owners accept 5% as a down payment.

5. The Lease/Purchase payment usually has an amount specified to be credited toward your down payment at closing. This is also a negotiable item. The benefit: Your rent dollars contribute to your down payment and works like a savings, you are not wasting money on rent. Depending on the lender, amount down, the lease payment and your negotiated portion allocated toward down payment...you may not need an additional deposit upon closing. You may be able to construct your Lease/Purchase contract to assist you in achieving this goal. It would be wise to consult with a mortgage lender to help you set a goal for your down payment needed. The risk: You will not receive the monthly allocated dollars if you decide not to purchase, not any different that standard rent.

6. The Lease/Purchase Price: An important negotiable item. The Benefit: The Purchase price is usually specified in your Lease/Purchase contract which allows you to gain the increase in property value upon purchase. Although markets and time frames vary, 3% per year is a commonly used estimate of increase in property value. The agreed purchase price allows you to plan for your mortgage with a guaranteed price, while building equity in your ownership. Which of course is one of the main reasons for buying your own home. Equity becomes a valuable financial tool for your future financial needs. The Risk: Although very rare, if the property were to decrease in value, the owner would not be obligated to reduce the agreed upon price when you are ready to purchase.

7. Some additional benefits to a Lease/Purchase:

a.        The contract period allows you to "Test" the ownership opportunity and condition of the home, the neighborhood or your length of residency.

b.       Some owners may be willing to negotiate tax benefits during the contract period.

c.        You can enjoy living in your home now, instead of waiting to save for a down payment or improve your credit.

d.       Your selection of available homes is greater with a Lease/Purchase contract compared to standard rental homes.

e.        Many lenders are able to treat a Lease/Purchase contract much like a refinance. This means your closing costs to obtain a mortgage could be considerably less. This would be a good question for your mortgage lender.

8. The Lender: Establishing a relationship with a mortgage lender prior to beginning a Lease/Purchase contract would be helpful in planning your home purchase. Many have similar qualification requirements and some may offer more assistance than others. So, if you are serious about purchasing the home a good mortgage lender will help you obtain your goal. Affordably!

Hopefully you have found this information helpful; of course the details of a Lease/Purchase vary depending on the owner and the negotiated terms. We offer Lease/Purchase Tenant Services and will be glad to work with you in obtaining your goals. The Lease/Purchase has become a popular choice among owners and future buyers/Tenants. You should always seek professional advice before entering a legal contract.

National Real Estate Services specializes in lease/purchase, rentals and relocations. We will match you with the professionals needed. See descriptions below:

a.       Property Manager- A good property manager will provide your proof of payment history to the lender, assist you in locating properties that have a Lease/Purchase available and refer you to other professionals to help you in obtaining your home ownership goal.

b.        Real Estate Agent-A Real estate agent would be needed to present your Lease/Purchase contract for consideration. A good agent will  have your needs in mind when searching for properties, presenting an offer, and are required to disclose whether they represent you, the seller or both. If you are not familiar with the aspects of a purchase agreement a good agent will be of great value in evaluating the risks and benefits.

c.         Mortgage Lender-Loan programs vary and are important the type of loan you seek to obtain. The lender and/or loan program are essential in using the terms of your Lease/Purchase contract for your mortgage benefits.