Hopeful homeowners may find fit in lease-option arrangement

Home builders and real estate agents agree that easing loan qualifying standards would accelerate the housing rebound. Lawrence Yun, chief economist for the National Association of Realtors, is leading the charge.

“If financial institutions returned to normal underwriting requirements,” Yun wrote, “NAR estimates that an additional 10 to 15 percent of residential homes would be sold, resulting in the creation of approximately 300,000 new jobs in the economy.”

David Crowe, Yun’s counterpart at the National Association of Home Builders, also said that a gradual, steady housing recovery could be bolstered by a variety of factors, including easier access to mortgage funds.

“Stubbornly tight lending standards for homebuyers and builders, inaccurate appraisals, and proposals by policymakers to tamper with the mortgage interest deduction could dampen future housing demand,” Crowe said.

According to local lenders, qualifying for a loan will become more difficult in 2013. Rental rates are going up. If you are cleaning up your credit, or stashing away more cash to help your chances of getting a loan, perhaps leasing a home with an option to buy is a sensible interim step.

A lease with an option to buy often can solve a two-mortgage problem for a seller, and provide a cash-poor buyer with an opportunity to “try out’’ a house while getting a portion on the monthly rent credited toward a down payment.

Many sellers make a commitment to purchase another house contingent on selling the one they’re already in. But when it comes time to purchase the second house, or lose it, the prospective buyer can be faced with making payments on two homes if the first one has not sold.

A 12- to 18-month lease agreement, with an option to buy within the lease period, can solve problems. Here’s how a typical lease-option works:

• The buyer and seller agree on a purchase price, usually a figure somewhere between today’s market value and the anticipated market value 12 months down the road.

• The seller gives up tomorrow’s presumably higher value for money in hand today. The buyer pays a bit more than today’s value in exchange for very little cash down. Let’s say buyer and seller agree the price will be $250,000.

• The seller charges the buyer a nonrefundable fee for agreeing to this option. The amount can vary depending on factors such as how eager the seller is to move and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.

Let’s use $3,000 for the fee in our hypothetical transaction. The fee is in addition to the monthly lease payments. And we’ll have the seller give the buyer the right to purchase the property for $250,000 at any time within the 12-month lease period. If the option is exercised, the fee could be considered part of the down payment.

Since the lessee has made no lump-sum down payment, the monthly rent is typically higher than rental market rates. The two parties agree on what portion of the rent will be applied to the down payment. Any amount can be credited. For example, if the monthly rent is $1,500, $600 could be credited to the down payment. (If the seller really is not eager to sell, he may not agree to a higher rent credit.)

Buyer and seller must be sure to specify both lease and sale terms in the agreement. For example, when the time comes for the buyer to exercise the option, if the interest rates are at 5 percent, the buyer may not be able to qualify for a loan. It’s a good idea to set an interest-rate ceiling in the agreement, or ask the seller to finance the home when conventional rates hit a certain level.

Sellers should read their mortgage agreements carefully before entering a lease-option agreement. Some lenders may activate a “due-on-sale’’ clause if the seller enters into a lease-option with another party. Many times, lenders will permit a specific lease-option period if notified in advance. Some realty agents have been reluctant to seek lease options for clients because they have been unwilling to gamble their commissions on whether the option would be exercised. Others are skittish about deferring their commission until a deal is solidified. However, when open-minded agents understand a lease-option could keep a deal together and result in future business, the concept often is readily accepted.