Home buyers who can't qualify for a mortgage now can still buy a house if the seller doesn't mind rolling the dice. More than 250 houses in the Tampa Bay area have sold since January 2010 when sellers and buyers struck deals with lease options. Lease-to-own deals are risky for sellers and buyers. The agreements, real estate experts say, work best when the seller's mortgage is paid off and the owner can afford to collect monthly payments from the buyers. The option requires buyers to secure conventional financing after renting for one to three years or longer.
With the housing market in the doldrums, the deals draw buyers with bad credit, foreclosures or bankruptcies. But sellers are lured to the deals because they can't find a buyer and need to cover their mortgage payment.
"The biggest risk is you're renting to someone without good credit," said Tina Shank, an agent with RE/Max Realtec Group in Palm Harbor. She is seeing an uptick in these deals with houses priced higher than $300,000.
As of Oct. 12, sale listings included 181 homes where the owner would consider the lease option. Prices ranged from $27,500 for a two-bedroom, one-bath home to a $3.8 million mansion with five bedrooms and five bathrooms, according to My Florida Regional Multiple Listing Service data.
How the deals work
The property owner holds the upper hand because he or she sets the prices. But nothing is set in stone, and terms can be negotiated. The contract should list the sale price of the home just like a sale contract.
Buyers will have a down payment and then pay rent each month. They have the right to buy the property later. Part of the rent will go toward the down payment when the purchase option is used.
Sellers are obligated to sell when the purchase option is exercised, but the buyer isn't obligated to buy.
Buyers could lose the down payment if they cannot get a mortgage when the lease option expires.
Buyers might be expected to make some repairs to the house unlike a traditional lease.
One thing is certain on these deals: Sellers should require a large down payment from the buyer. That protects the seller if the home is damaged but also provides an incentive for the buyer to not walk away from the deal and to get financing in the future.
Experts caution both sides to have a lawyer involved in the contract and for sellers to check the employment, credit and criminal histories of buyers.
"The owners should be prepared to get the house back at a moment's notice if the renter walks away," Shank said.
Attorney Shawn Yesner of Yesner & Boss cautioned that lease-option deals are used by many predator-like real estate investors to make money from unsuspecting buyers.
"Lease-option deals can be very good for the educated consumer, or very bad for the uneducated consumer," he said.
Depending on how badly a buyer wants to buy a home, or how badly a seller wants to sell a house, the deals could be beneficial to both sides if done right.
Mark Puente can be reached at firstname.lastname@example.org or (727) 893-8459. Follow him at Twitter at twitter.com/markpuente.