When Is a Lease-Purchase a Good Option?

A lease-purchase is a commonly used way to convey ownership of a home. However, this type of transaction is not in the best interest of everyone. Here are a few times when making a lease-purchase deal is a good option.

Bad Credit

One of the most appropriate times to use a lease-purchase to purchase a home is when you have bad credit. Most people that utilize this option do so because they cannot get approved for a loan at a bank. By using this type of agreement, you can secure a home that you want until you can get approved for financing. Many of these agreements will last from 2 to 3 years before you have to purchase the home. Therefore, during that amount time, you can take the necessary steps to rebuild your credit. By paying down credit card balances and getting on a regular payment schedule with your creditors, you can significantly increase your credit score during that period. If you do not enter in to a lease-purchase agreement, the house that you want will most likely be the property of someone else by the time your credit is fixed. This gives you the chance to get your hands on a good property even if your credit score is lacking.

Bad Real Estate Markets

From the seller's perspective, this type of transaction makes a lot of sense during a down real estate market. Many sellers will use the strategy in order to differentiate their property from many others on the market. By offering a lease-purchase agreement, you can increase the odds of finding someone that wants to buy your property. Those that cannot qualify for traditional financing will look for these types of agreements and you can move your property faster as a result. While this will not provide you with a cash payment all at once, it will at least get the process started for you. In addition, it can provide you with some nice rental income while you are waiting on the purchase to take place.

Lack of Money

Another time that using a lease-purchase makes sense is when you do not have much money for a down payment on a home. Most of the time, you will have to come up with some type of down payment in order to get financing for a house. If you want to get involved in the real estate market but do not have much money in savings, this can be a great way to do it. You can effectively tie up the property until you come up with enough money to purchase it. This will help you avoid missing out on good real estate deals, and it will allow you to take advantage of current real estate prices. While you are renting the property, the value of the home may increase. However, if you agreed to the sale price on the front end of the deal, which is the usual practice for lease-purchases, you will be able to purchase the home for less than market value.