Saturday, April 01, 2006
Is lease with option to buy wise for property owner?
Here's a great column about the wisdom of lease-option purchases ...How arrangement works for seller and buyer
Thursday, March 30, 2006By Ilyce R. GlinkInman NewsQUESTION: I own a property and am considering a lease with an option to buy instead of just leasing the property. I have a mortgage on the property, and I'm wondering if I can do a lease-purchase on the property to someone even though the property is mortgaged? I pay the mortgage on time each month.ANSWER: If you own the property, you can do a lease-option, which allows the renter to accumulate some down-payment money as well as have an option to purchase the property at some point in the future.Leasing this rental property is acceptable. The only different thing is that typically with a lease-option, you would negotiate the purchase price at the beginning of the lease/option period.If the option is picked up, all you need to do is schedule the closing date, hire an escrow or title company, and provide any state-mandated disclosure. Unless your loan is assumable (meaning that the future buyer can assume the mortgage from you), you will have to pay off the mortgage with the proceeds from the sale.The buyer will have to get approved for a loan in his or her own name. And that's typically the reason why many first-time buyers want to do a lease-option -- they can't quite qualify to buy the home that they've decided they want.Doing a lease/option allows the buyer to live in the home for a year and pay a non-refundable option for the right to purchase the property in the future at a price that's negotiated today.Finally, most home loans do not prohibit you from leasing your property and usually require you to pay off the loan upon the sale of the home.QUESTION: Before I meet with an exclusive buyer's agent or check out homes, should I get pre-approved for the maximum amount or for the price range I'm interesting in purchasing?I spoke with the exclusive buyer's agent I'm thinking about using yesterday and he told me not to get pre-approved for the amount I'm thinking about offering, but to go ahead and get pre-approved for the maximum amount.My only concern is that if the buyer's agent shows the listing agent my pre-approval letter noting the maximum amount the lender is willing to finance, I think it will eliminate my leverage when it comes time to negotiate with the seller.Anyway, my gut is telling me that the buyer's agent is looking to get the highest amount for the property, thus a higher commission. What are your thoughts?ANSWER: Real estate attorneys confirm that brokers are including pre-approval letters along with purchase contracts. So you're right to be concerned. But I think there is a relatively easy way to get around this problem.But first, in general, I don't think you should tell anyone how much money your lender has agreed to finance for you. Your agent shouldn't know that number specifically nor should the seller's agent or the seller. Playing your financial cards close to the vest is an important part of the negotiation of the sales price. You alone should know how much you can ultimately afford to spend on a home.However, your agent needs to know how much you're willing to spend on a property--and that can be an entirely different number.You need to decide how much you're willing to spend each month, a number that I would hope will be based on your current personal finance situation--how much you're bringing home, how much you're paying out in monthly debt service, and how much you've already saved for the down payment.Once you tell the agent you're willing to spend, say, $250,000, she should show you homes that are priced not too much above that number. But telling her that's what you're willing to spend is different from showing her a pre-approval letter that states the lender is willing to loan you up to $300,000.If you've decided that $300,000 is too much for your budget, it doesn't matter that the lender thinks you should be able to afford it. You may not feel that way. And showing that letter to your agent -- even an exclusive buyer's agent -- could change the dynamics of your home buying experience.Here's one possible solution. Find out how much your lender would be willing to lend you--the maximum loan possible. Then, add in how much down payment you have for the purchase. Finally, decide if that's the total amount you really want to spend.Once you decide what is the maximum amount you want to spend on a home, ask the lender to prepare a pre-approval letter for 80 percent of that amount. The lender will assume that you'll be putting down 20 percent on the property. If you decide later to get a loan with a smaller down payment, say 10 percent, you will still fall within the guidelines of what the lender originally agreed to lend to you.But when your agent clips a copy of the pre-approval letter to the purchase contract, you're not giving away the store.You can even ask the lender to tailor the pre-approval letter for the home you want to bid on, by working the numbers specific to the transaction.I do want to address one other point in your letter: I don't think a quality buyer's agent will be trying to get you to ante up and spend more for a house just so the commission is slightly larger.Most agents run their businesses by referral so they want you to have the best home-buying experience possible. That way, they hope, you'll think of recommending them to your friends and relatives. That's how they build their businesses and make a living.Judging from the tone of your e-mail, trust sounds like a big issue for you. If you don't trust this agent, then you need to start shopping around for another agent. This is the single biggest purchase of your life and you need to be with someone you can trust to have your best interests at heart.
Contact Ilyce through her Web site, www.thinkglink.com.Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula
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