Many home buyers are eager to purchase a home because they understand that now is a good time to buy: prices are rising quickly, interest rates are low, and the inventory of homes for sale is shrinking. However, not all of these buyers who are willing to purchase are able to at the moment. Perhaps they have a home they need to sell in order to qualify for (or feel comfortable taking on) a mortgage. Or perhaps they need to save money for a down payment, work to improve their credit score, or wait for divorce paperwork to get settled. Although these home buyers want to purchase, a financial or personal setback delays their time frame by 6 to 12 months.
Buyers might consider lease to purchase homes because they seem like an ideal solution. In these scenarios the buyer could:
- Go ahead and secure the home they want.
- “Test drive” the home for several months to make sure they like the location and commute.
- Have time to get their finances in order before getting a mortgage.
- Reduce headache and expenses by only moving once.
Theoretically, lease to purchase (or rent to own) homes make a lot of sense. However, there are several good reasons to avoid them.
#1 In our current real estate market, very few sellers will consider lease to purchase.
Most housing markets around the country are experiencing sellers’ markets, meaning that sellers can get the price they want in a reasonably short time frame. Homes in Mount Pleasant often sell within a week of getting listed for full price or almost full list price. If you’re considering rent to owns, put yourself in the seller’s shoes. If you could sell your home easily for the price you need and be closed on the transaction within 45 days, why would you consider a lease to purchase that could drag out and still not result in a closing?
#2 Don’t pigeon hole yourself into buying the few properties that will take rent to own.
If you’re narrowing down your search to only the handful of properties that will do lease to purchase, you’ll have to settle on other factors. Is it worth buying a home that doesn’t have the location, square footage, bathrooms, or backyard you really want simply so that you can get the time frame and scenario you want?
#3 The sellers who will consider your offer are going to make you pay for it!
The seller would be taking on much more risk by taking his home off the market for 6-12 months for a deal that might or might not go through. To make up for this risk, time, and inconvenience, you’ll be paying more for the home than you would if you outright bought it. The seller can get this additional money through monthly rent or final purchase price, but know that in the long run you’re paying for the rent to own scenario.
Although lease to purchases might seem like a good solution, it’s usually in the buyer’s best interests to find a rental until you’re ready to buy. Not only will it save you money in the long run, but it will also ensure for a cleaner transaction and will allow you to choose the best home for the most competitive price once you get your ducks in a row!