If you’re considering purchasing a new home, you may be wondering if you’re
going to like the neighborhood, if the schools are acceptable and if city
services are going to be adequate. A lease purchase agreement may be a way for
you to find out those things without sinking a lot of money into the property up
front.
A lease purchase agreement is really nothing more than your assurance to the
owner that you’re going to make payments on the house as if you were paying a
loan, and the owner’s assurance that he won’t evict you or sell the house as
long as you’re keeping up those payments. In many ways, a lease purchase
agreement is similar to owner financing.
You are going to have an investment in the property when you enter a lease
purchase agreement. You may be asked to put up a down payment, though it
probably won’t be nearly what you would have been required to pay on a typical
mortgage. A lease purchase will usually be easier to break with fewer
repercussions than a traditional mortgage. Though lease purchase agreements vary
from one situation to another, you may very well find that you have the option
to simply walk away from the deal at some specific point – one year into the
lease, for example.
Before you take on a lease purchase agreement as a test drive, be sure
there’s some clause in your lease purchase agreement that will allow you to
break the lease with a minimum of repercussions.
That’s not to say that there aren’t going to be any costs. For example, if
you break a lease purchase agreement you will lose whatever you’ve put into the
deal – including the down payment, payments made and any improvements. But the
costs may very well be less than rent for that same period of time.
So why enter a lease purchase agreement instead of just renting? If you
decide you do like the neighborhood and want to stay, you have a home. The lease
purchase agreement you’ve entered into is your assurance that the owner isn’t
going to sell the home to someone else, forcing you to relocate.
Among the negative points of using a lease purchase agreement in this way is
that you can’t really begin to make changes in the home without running the risk
of losing that money you’ve invested. If you purchased the home outright, made
improvements and then decided to sell, you’d have the opportunity to recover at
least some of that investment in the selling price of you r home. The lease
purchase agreement will likely indicate that any improvements become the
property of the owner and that you won’t be compensated for any work. After all,
if you follow the lease purchase to the end of the term, those improvements will
benefit you. It wouldn’t be fair for the owner of the lease purchase property to
pay for something that could potentially benefit you.
Remember that the ability to break a lease purchase agreement could be a
double-edged sword. The clause that will allow you to get out of the deal if you
hate the area, can’t afford the payments or just want to move may very well be
the clause that allows the owner to change his mind as well. Pay close attention
to the wording in your lease purchase agreement, especially before you start
putting money into the property.
