Explanation of hire-purchase homeownership
Prospective home buyers who want a home but lack of advances and credit accounts to buy now seeking lease-purchase as an option. In a lease -purchase basically the owner finances the purchase during the period prior to the purchase option lease. tenant secures its own funding to complete the purchase after the end of the lease period if you choose to exercise option to buy the house. You have no obligation to purchase, but the owner must sell him if you so choose.
The lease with option to buy is a lease that gives the tenant an option to purchase the property after the lease ends. The contract specifies the payment of rent and the term of the lease , which is usually one to three years. The contract also notes the purchase price or method of determining the purchase price to the tenant / buyer and landlord agree. For example, the parties may decide that the purchase price will be the market value at the time the lease period ends, as determined by an appraisal. Finally, the contract specifies a payment option, which is money that the tenant pays for the privilege of having the option and an amount the tenant pays each month in addition to rent, such as installment payments for an eventual down payment. The owner may request the option of paying the initial fee.
Benefits and risks to tenants / buyers
The tenant usually choose lease-purchase because it can not afford to buy a home. You may have little cash needed for the down payment. Or, as is often the case, your credit score may be too low to qualify for a mortgage loan. The benefit of lease purchase option allows the tenant / buyer save money for your credit at the same time, not delayed by moving to a home. The most serious risk is the possibility that the tenant can not save the money you need or improve your credit enough to secure a loan. If you are unable to exercise their option, to sell the option before maturity or lose the option fee and payments made in monthly installments for a down payment.
Benefits and risks for the owner / seller
The lease-purchase benefits the landlord usually more than benefit tenants as tenants assume most of the risk. Installment payments and share option protects the owner against losses resulting from the unwillingness or inability to exercise the option of the tenant. The owner also benefits from the penalties imposed on the property and that the other party maintained and improved home. The main risk to the seller is the possibility that the value of the housing slump, pushing the tenant of the house and doing a hard sell. In addition, the mortgage loan seller and perhaps insurance landlord may prohibit leasing options. To ignore these restrictions may result in the lender cancel the deal and the insurance policy.
Making it work
If you are a tenant or owner, it is important to consult an attorney before negotiating a lease with option to purchase. You need to know that the contract terms are reasonable and typical or can be a sign that the other party is trying to take advantage. tenant / buyer needs advice on the consequences of lending money to a homeowner who can not buy. You should also discuss issues such as the responsibility for maintaining and repairing the home before purchase. The seller must ensure that you understand the potential impact of the option lease your home loan and the consequences of fluctuations in market value.