Lease Purchase Options - Why Landlords Hope You Don't Get the Mortgage Loan

At time when a person wants to own a home they may find that they lack the credit rating to obtain a mortgage loan. They will then try some alternative methods to make their dream of homeownership come true. One such method that is out there for people who lack the credit rating is the lease purchase option. This option allows potential homeowners to place a down payment on a home and live in that home for a year while making rent payments. The landlord will most of the time allow a small portion of the rent each month come off the purchase price. This will give you some standing with the banks and/or mortgage lenders when your year is up and you go to obtain the mortgage. After all you have placed a fairly decent down payment down on the home already as well as paid off a very small portion of the asking price over the last year.

Now is here is where you can run into some problems with lease purchase options. First off you entered into the lease purchase option because you did not have the credit rating to obtain a mortgage. So after a year you still may not have the credit rating necessary to obtain a mortgage loan. Or your credit rating may only be good enough to qualify for a subprime mortgage. Subprime mortgages come with extremely high interest rates and other high fees. Subprime mortgages carry a higher foreclosure rate than other types of mortgages also. So now you are either without the required mortgage at the end of the year thus ending in you being evicted or you are stuck in a subprime mortgage. Now the lease purchase option may not be looking so good.

Most landlords that offer the lease purchase option really are praying that you do not obtain the mortgage at the end of the year. Now remember I said most but not all are like this, it is just hard to tell until it usually is too late which ones are which. There is a reason why they really do not want you to obtain the mortgage. They make more off that house if you do not obtain the mortgage.

Example of how the landlord makes more. Let us say the house has a $3,000 dollar down payment and rents for $500 a month. The asking price on the house is $50,000 and the landlord is going to take $150 dollars off the asking price each month. Ok so now you have given them $3,000 dollars and are making $500 dollar a month payments for a year. The landlord has now made in hand a cash amount of $8,500. Now if you were to obtain the mortgage for the now asking price of $53, 350 that would be all the money the landlord would see.

Now if you did not get the mortgage and the landlord evicted you they could then go on and play the lease purchase option with other people who lacked the credit rating and hope that they also did not raise their credit up enough within a year. If they played this game for say 7 years they would actually have made more off that house than they would had you be able to purchase the house. After 7 years they would have made cash in hand $59,500.

Unlike renting a home out to a tenant with a deposit the landlord does not have to give you back the down payment. You have no legal recourse to get any of your down payment back at the end of the year like you would have it had only been a deposit. Also if the landlord had only rented the house with a deposit then they would only had made $6500. As with a normal renting procedure the landlord could not kick you out after a year if you are making all payments on time but with a lease purchase they can evict you after a year and move on to a new victim.