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Hardly a day goes by that the news media doesn't tell us about how tough the real estate market is for sellers and buyers alike.  Sellers can't sell because there are few buyers in the market.  They try to drop prices to attract a buyer, but the depreciation in housing prices makes their homes too close to, or even below, their loan value.  It's certainly not a pretty picture for homeowners who want or need to sell.

Buyers are in just as tough a position.  A recent study showed that about a third of all U.S. adults have credit scores too low to qualify for most mortgages today.  But, even if they could qualify, the vast majority do not have the down payment the lender will require.  So, buyers aren't even looking, just renting, and sellers are wishing things were different.

A method of selling a home, the lease-purchase or lease-to-own is being presented as a solution to many sellers and buyers.  It's been around a long time, and it would seem that this could be the solution for many.  The buyer and seller agree on a lease contract for a specific period of time, and the buyer has an option to purchase the home at the end of the lease.  This allows the buyer to move into the home they ultimately want to buy and make lease payments, some very few cases of which may be applied toward the down payment.

It sounds like a solution, but hasn't been very effective for several reasons.  The buyer's low credit score is likely to be little or no better at the end of the lease than at the beginning, unless they enter into some kind of credit counseling or a credit repair situation.  Many do not.  The amount of money applied from lease payments to the down payment is rarely close to enough to meet current lender down payment requirements, so the buyers can't get a mortgage when the lease is up.  This is not that risky for the buyer, as they can just continue to rent that home or move to another rental.  It is however, very risky for the seller, who may have moved out of the area, and is trying to start a new life free of the obligation for that home's mortgage.  If it's turned back to them by the buyer not exercising their purchase option, their current financial situation may be such that they can't make the payments.

Perhaps there will be some innovative solutions coming, as there's certainly benefits for both buyers and sellers if the negatives of lease-to-own can be overcome.

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