My husband and I finally finished looking at all the houses on the market in our area that were even remotely within our price range. We short-listed three and began looking at how we were going to get a loan to buy one of them. With the mortgage industry in financial chaos, lenders are taking a hard, close look at applicants. They’re more than willing to loan on our first choice of a home, however, if we can come up with enough of a down payment to sooth their fears. There’s just one tiny problem. We only have about half of what they would like us to have in the way of a down payment. Fortunately, there is a solution. Our favorite house was just reduced in price and the possibility of a lease-to-own option was raised.

Bingo. Three weeks later and we just started unpacking boxes in our new house. It’s ours, yes, but technically we’re renting it for the next twelve months. At some point before this time next year we will exercise our option to buy it.

So, this is how the process works:

• First, you’ll make an offer similar to the kind you would make in a straight purchase. They’re asking a certain amount of money, you offer less, they counter somewhere in the middle (if you’re lucky!). With the offer, though, you also submit your intention that this be a lease-to-own. You will fill out papers that look a lot like a standard rental agreement. When all parties agree on the terms, a lawyer will draw up a contract which everyone signs. This means that legally you have the right to buy the house during the time period when you are renting it and the owners can’t sell it to someone else in the meantime.
• Next, you’ll put down some cash up front which will go toward your eventual down payment. An agreed-upon amount of each month’s rent will also be applied to your down payment. When you exercise the option to buy you will then produce the rest of the cash needed for the down payment on the house. If at the end of your lease you decide you don’t want to buy the house, or can not get a loan for it, then you lose the money you’ve already paid towards the down payment and the monthly rent. That’s the risk.

So, why take such a gamble? Simple. Twelve months can buy you the time you need to make the whole process go smoothly (or happen at all). In twelve months you can finish saving up the money for your down payment and shop for the perfect loan. If needed, you can clean up your credit, too. You also get a chance to test drive your new house and new neighborhood and make sure that it’s all you thought it would be in the first place. It helps eliminate buyer’s remorse because you’ll know a lot more about the quirks and pitfalls of the house you want to buy before making a long-term commitment to it. Think of it like an engagement period. Sure, you can always break off the engagement if you have to. It will be messy and costly, but far less so than ending up trapped in a relationship that’s all wrong for you.

In formalizing the lease to own agreement with a contract, make sure you have a title company handle things. They can ensure that your right to purchase the house is recorded on the title, which helps protect you by preserving a record of your rights in relation to the house.

Not all sellers will agree to a lease-to-own arrangement. However, if you find a house you love and need a little time to make the financial end of the transaction work out, it never hurts to ask. The good news is that right now it truly is a buyer’s market and the longer things continue the way they are, the more desperate—and flexible—sellers will become.

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Related Links:
Find out more about purchasing a home in your state. http://real-estate.lawyers.com/residential-real-estate/Purchasing-a-Home-in-Your-State.html

Find out more about landlord duties. http://leases-and-leasing.lawyers.com/landlord-tenant-law/What-To-Expect-From-Your-Landlord.html

To buy or not to buy?  That is the question that plagues renters.  Whether ‘tis better to suffer the whims and rent raises of landlords or to stake all on the ability to pay a mortgage?  My husband and I, who have always been renters, have decided that this is the year we are going to change our status to that of homeowners.  A number of factors have contributed to this decision ranging from the need for the tax break to the overwhelming desire to have walls that are not white or that even more hideous cream color that most landlords prefer.

With the current crisis in the mortgage industry it might seem like insanity to even think about buying right now.  For those who can swing it, though, this is a great time to snag a house for a lot less than you would have paid a year ago or might pay a year from now.  For anyone trying to decide whether to rent or buy there are several factors to take into account.

Intention to remain in the same place – Do you intend to stay in the same area for a long period of time, or do you only plan on staying for a couple of years or as long as it takes to get that undergraduate or graduate degree or put another line on your resume or save up the money to move?

Price – What will be the price difference in your area between renting and buying something?  Shop around.  If you can rent a two bedroom house or apartment for $1,000, but a mortgage on a similar sized two bedroom place will run you $2,000, then you need to seriously consider whether or not owning that place is worth paying twice as much a month to you.  For some the answer is yes, for others no. 

Stability - Is your income 100% predictable and are your expenses fixed so that you know each month what’s coming in and going out?  If so, then buying, if you can afford it, is going to be an attractive situation, especially given that you are investing your money in the property.  However, if you have income or expenses that are more unpredictable, you might want to opt for the cheaper rent so that when one of those low-income, high-expense months comes along (and they always do) you don’t have to dip into savings or borrow from a relative or friend to cover your housing costs.  There’s a lot to be said for being able to be independent.

Likely future change in your housing needs – If you know that there are events coming up in your future that will drastically affect your housing needs, then you might want to consider renting until then.  When you know exactly what you need in a house in terms of space, location, and amenities, then you’ll be able to make a more informed purchase.  If renting just doesn’t appeal to you, you can still purchase, but do so with an eye to what you are going to need five years from now and not just five months from now.  Likely future changes include planning for children or downsizing for retirement.

Amount of time and money you have – They say that when there is a problem you can throw either time or money at it.  When something goes wrong with the house you own, you have to fix it which means spending money, spending time, or in all likelihood, both.  When you rent and something goes wrong it is your landlord’s job to spend their time and money fixing the problem.  If you need to find a plumber on a holiday weekend it’s good to not be the one footing the bill.  On the other hand, not all landlords are as responsive as we would like or need which can mean extra time living with something that’s broken before it gets fixed.  It can also mean that you have to be something of a nag to get things done.

Amount of control you need – If you are the type of person that needs to exercise a lot of control over your environment then you’re going to want to buy.  When you own something you get to make all those decisions that landlords do when you rent.  This ranges from cosmetic things (like what color to paint the walls) to more important things (like when to schedule appointments you need to be home for).  I have some friends who are very happy with the layout of the apartment they are currently renting, but have serious problems with the level of control exercised by the management.  At least once a month the landlord schedules different events (inspecting sliding glass doors, etc.) without regard for anyone else’s schedule.  My friends, like many people, don’t like strangers walking around their place unattended, and often must take unpaid time off from work to be present for these maintenance calls.  Ideally, they need to either find a place to rent where they can exercise more control over their space or they need to buy a house.

Buying a house is a huge step, and certainly isn’t for everyone.  If you decide to take that plunge, make sure you get a real estate agent or broker you trust (HINT – the good ones won’t make your skin crawl!)  Research the area to find the best deal that’s right for you.  Know what you can do today and what you will need to do down the road to keep the house once you get it.  Happy house hunting!

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Related Links:

• How much are your payments going to be?  Check out this online mortgage calculator.
• What do I need to know if I’m looking at buying a bank-owned house? 
• As a renter, what rights do I really have?