If a buyer is interested in a particular home but doesn’t have all of the down payment collected, a lease purchase might be the best bet, and it seems to offer advantages to both the seller and the buyer.
Simply put, this rent-to-own agreement means the financing is done by the seller of the property instead of a regular bank, and if you’re curious about some of the pros and cons to both sides of the arrangement, keep reading.
Pros and Cons to the Seller
Pros:
- The price of the home can be locked in from the beginning.
- The buyer is more likely to keep the home in good condition since he or she will eventually own the property.
- The up-front payments provide for a better return on investment (ROI) for the seller.
- The seller keeps the lease payments even if the buyer eventually bails out on the agreement.
Cons:
- Something could still happen to cancel the agreement and see the buyer leaving the property.
- The seller has to wait longer to get down the down payment from the buyer.
Pros and Cons to the Buyer
Pros:
- It gives the buyer time to resolve credit problems and other issues.
- It allows the buyer to stay in the home instead of renting another location.
- It allows the buyer to start on some of the repairs that are needed, provided it is alright with the seller to do so.
- It gives a buyer time to save up for the down payment.
Cons:
- The buyer loses all of the lease payments if he or she decides to bail out at the last minute.
- The home does not belong to the buyer yet, so he or she is limited when it comes to repairs, renovations, and so on.
A well-thought-out lease option is also good because the seller can go ahead and take the house off the market without worrying about having to make monthly payments. The buyer has time to get all of the money together for closing costs and more, and in the meantime, both the buyer and seller benefit from the arrangement.
Conclusion
A rent-to-own agreement offers many advantages for both buyer and seller, but you’ll still want to make sure you understand everything that’s in the agreement so that no misunderstandings occur. The agreements are detailed just like the tools that banks and other financial institutions use, which means they can sometimes get technical. In other words, if this type of agreement is what you want, it’ll behoove you to go through it with a financial expert to make sure you understand it completely before signing anything.