The Cons of a Lease Purchase Option: Consider the Risks Carefully Before You Sign

The Cons of a Lease Purchase Option: Consider the Risks Carefully Before You Sign

With any type of financial transaction there are cons as well as pros, and the lease purchase option is no exception. Most homeowners and investors have the best interest of the buyer in mind when offering a lease purchase option, but a small percentage do not. Unscrupulous investors are hoping that after months of paying on time you will make a mistake when paying the lease purchase option or do something the lease purchase option does not allow. A single mistake can be quite costly in some cases.

Read the contract very carefully before signing a lease purchase option agreement. Some investors or homeowners include a clause in the lease purchase option contract that allows them to repossess the property and keep the accumulated down payment if a single payment is late. This is one of the cons, and although this is unreasonable and unlikely, it happens in rare instances.

Demand a three-strike clause that allows up to three late payments before the homeowner or investor can repossess the home and keep the investment, or do not sign the contract. After all, mistakes happen, and unless the lease purchase option payment is made in person, a the payment is never guaranteed to make it on time if at all. Most homeowners and investors want the buyer to be able to obtain the loan when the lease purchase option is up. This is when they collect a windfall, but if the equity is low and they do not have much to gain, they might not have the buyer’s best interest in mind.

Gambling is always risky, and this is also one of the cons of a lease purchase option when buying a home. Are you positive you will be able to get a loan before the lease purchase option changes? If a predetermined amount of time has been surpassed when seeking a loan, the homeowner or investor will most certainly include a clause that includes a price increase, and that increase does not only include the monthly payment. The total price of the home will increase by a predetermined percentage after the first contract is up.

For example, a lease purchase option contract might contain a clause that will increase the monthly payment by a half percent as well as the total price of the home. This is most certainly one of the cons. A rental payment of $1,200 a month would increase by only $6 each month, but the total purchase price of the home increasing is one of the worst cons of a lease purchase option. One half percent of $200,000 is $1,000, and in a period of 12 months the price of the home will rise by $12,000. Considering these cons, is this a risk worth taking?

Another one of the major cons of this type of transaction is the risk of losing the entire investment. If the buyer cannot get a loan for the home no matter the reason, unless the contract says otherwise, they will lose all of the down payment and the cost of any improvements made. This could amount to tens of thousands of dollars, and before deciding on accepting a lease purchase option, you must be certain the odds are in your favor, and after weighing the pros and cons, you must decide if this road to homeownership is a path you are willing to take and if the pros outweigh the cons in your particular case.

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