In the past few years, I have been working with many folks who are unable to purchase for one reason or another. Most times, it is lack of ability to get financed due to the increasingly strict guidelines for loan approval that are often problems that just need time to remedy. Self-employed persons are prime examples of these buyers who are closely scrutinized for many reasons including lack of years in business, changing fields or simply moving to a new town, etc. Often these people have excellent credit but simply do not meet lender guidelines.
Other instances include those buyers who have a home to sell somewhere else before they can qualify for their mortgage. We are seeing this more and more as the supply of homes and the economic downturn has caused some markets to be over-capacity. We’ve certainly experienced that in Tallahassee as well as heard of it in other parts of the country. These buyers often have equity in their other homes, and they often have cash reserves but are unable to use that equity to qualify for a mortgage on a second home. They have great credit, but their debt-to-income ratios may be too high for a lender.
In both of these circumstances, time is often all that is needed. These circumstances are when a lease-purchase may work for both buyer and seller. Sellers who are ready to sell, who may own their home, or who can afford to wait to receive the proceeds from a sale may be able to make this type of purchase work.
There are risks associated with lease-purchase contracts and there are benefits. Some of the things a seller must do to reduce his/her risk are:
- Use a Qualified, Licensed Realtor who works with a Real Estate Attorney. Every transaction should be carefully reviewed, often Lease Purchase Agreements are drawn up by attorneys. Review all terms very carefully. Sellers should completely understand all the remedies for default and many other items including modifications to the home, insurance terms,
- Qualify your Buyer: Get a full loan application, obtain a full credit report with credit score for all buyers (all parties, separately). Use a standard Fannie Mae Universal Residential Loan Application Form 1003
- Negotiate a Sales Price and Lease Terms. Make sure you are getting fair market value for your home, and that you will be able to cover your current mortgage if you have one. Terms of the lease should always be more than your monthly payment and cover any carrying costs as well. Buyers need to have some skin in the game to prevent default.
- Set realistic terms and timeline for a specific time of purchase that meet buyer and seller’s needs. A “balloon” date is when the lease ends and the remainder of the loan terms must be satisfied. Buyers should begin preparing for this date well in advance in order to have their loan before this date arrives.
- Acquire a sufficient non-refundable deposit. Remember, these buyers most likely have money to purchase, that’s not the problem, it is the employment or history that is their stumbling block. Buyers who don’t have money now, will most likely not have it when their time for purchase arrives. Buyers must have something at stake that makes them stick with this purchase agreement.
Marketing your home as a possible Lease-Purchase eligible property may well find you the perfect buyer for your home. It certainly will open your marketing window to more potential buyers who are struggling with today’s lending guidelines. I have some of these buyers, and I have some sellers who can afford to work with lease-purchase agreements, and I am sure other Tallahassee Realtors do as well. Putting them together is the best part of what we do. Realtors are getting creative, to sell homes that might not otherwise sell. Think Creative!
If you are a seller or buyer with a special need, or a creative financing idea, please feel free to share it here or to contact Debbie.
This home for sale in Tallahassee has great Lease-Purchase potential.
