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Question
Lease to own for our house in Texas?
We are considering a lease-to-own option for our house and we're really confused about the process.
1) If we are asking for $1600/month in rent, how much of that would go towards the purchase price of the house? Is that something we negotiate with the buyer/tenet or is there a standard?
2) I assume that money is kept seperately in case the tenant/buyer agrees to purchase the house before the option ends and we give it to....the mortgage company? If they don't want to buy the house, that money is ours to keep, right?
3) What would be a reasonable down payment? The house is worth about $180K right now.
Best Answer
1) Typically the amount of money to go towards the purchase price is $100- $200 a month.
2) Have it written into the lease purchase agreement that they lose the money and down payment if they choose to not excise the right to purchase the home, or they can't get the financing for the home at the said time.
3) The down payment is typically 5- 15%, but it can be what ever you want (you are the current homeowner).
In a lease purchase situation, the house purchase price is slightly higher than the market value (assuming the house value will rise during the duration of the lease). The monthly payments are higher than the norm for renting a house in the area. A lease purchase generally works in the favour of the homeowner, not the purchaser. Many people looking for lease purchase loans can't qualify for a good mortgage rate or qualify at all- so having a lease purchase, allows them time to fix their credit issues, and be in the home they like.
Be sure to have a real estate lawyer look at the lease purchase agreement, to be sure that you are complying with local, state, and federal laws. They can even consult you on the norms for your area and write the lease purchase agreement for you- for a fee. I don't recommend going through a realtor for the agreement, because they will charge you a fee on top of the lawyer's fee- unless you have a trustworthy realtor that will handle the whole process for you (including finding the tenants/purchasers), which can be a good thing if you are not in the area of the home.
HTH and good luck.
Other Answers
Yes, the amount of rent that actually goes towards the principal reduction of the purchase price is completely negotiable. It may all be rent, or just a portion. As far as i know, there is not a standard in Texas for that.
Option money is ALWAYS yours to keep regardless of whether they purchase the house or not. But, it may be part of your agreement that if they do but the house this amount of money is credited to them at closing, or just a portion. This is the major difference between renting and leasing to own, because when you collect a security deposit on a rental property you must keep that money by law in some type of account, i.e. can't spend it!
As far as a reasonable "down payment", which is option money,not down payment, I would say needs to exceed what you would collect for a rental. So, if you were to collect first, last, and security at $1600 a month that would be $4800, so I would say $5000. But again, this is all negotiable, and can be very dependent on how long of a lease period, maybe it is only 6 months? Talk with your accountant because if this is a home you just moved out of, and possibly lived there for greater than 2 years, there is a major tax benefits available depending on how fast you sell it, check with an accountant.
Source(s)
I am a loan officer, www.austinmortgagesource.com
by Helen R - 5 years agoThe lease option contract is very open. It is just a peice of paper until you put your terms in their and the buyers and you sign it. There are a number of different ways you could do it, you could set up a monthly amount - normally a little bit more than average rents in your neighborhood, and that will be the monthly price of the lease-option. Than, you should recommend that they pay more, and put that in the contract, and that money will go toward the principle of the loan, so that they are decreasing the amount they will need to refinance.
Another way to do it would be to finance them at an interest rate - typically higher than the interest rate you have on your loan. Subprime interest rates are a good guideline to follow. Then you could use amortization tables to show them exactly how much is going to the pricinciple, and how much is going to the interest (i.e. the payment for the option to purchase).
Finally, always include taxes and interest in the amount. Why? Because when they finance the house, they will need to pay that anyways - so banks will want to see that they can handle the payments over a period of time before they finance them.
Recent changes in Texas law prohibit lease options for terms longer than six months if there is a mortgage on the property to be LO'd.
There is also an Attorney General opinion on this matter, although I can't locate it right at this moment. Do some googleing as you could end up with some very serious legal issues should you proceed.
