A New Lease-Purchase on Life

Catherine McAlpine of Rockville, with 8-month-old Nora, says trying to work out a lease-purchase arrangement for their house has been "a live-and-learn situation," in which they don't expect to break even. (By Mara Lee For The Washington Post)

The Federal Housing Administration will insure loans for buyers with credit scores as low as 640, he said, and requires a down payment of as little as 3 percent. Sellers are also allowed to pay a substantial portion of closing costs.

He said that, depending on the reason for the low credit score, it's unlikely to improve significantly in a year or 18 months. If it's low because of high credit card balances, those can be paid down, but poor payment histories fall off a report gradually.

For Brown's buyer-tenant to keep his payments at $2,800 a month after buying, assuming 3 percent down and a 6.5 percent rate, he would need a sales price of $405,000 -- and that's not including $177 a month for the FHA insurance, Martin said.

Robert Peralta has been trying to sell his three-year-old house in Southern Maryland for 10 months. He's selling because of a divorce. The house was bought with no money down and a five-year, interest-only, adjustable-rate first mortgage.

He wanted a buyer-tenant to pay $2,700 in rent, with $200 monthly credited to the down payment, and a hefty deposit.

"Nobody was really willing to put up that kind of money," he said. "The majority had bad credit or were going through foreclosures," and he didn't think they were risk-worthy, he said.

Peralta, who is asking $425,000 for the four-bedroom house, is thinking of lowering his price again in hopes of finding a traditional buyer, although he's still open to a lease-purchase.

Peralta is charging more than enough to cover his mortgage, but that's not possible for Peter Princiotto, who lives in McLean. Princiotto bought his house in 1984 and has refinanced several times "to make it a beautiful home." He changed the pitch of the roof, created a large music studio upstairs and added five skylights, among other projects.

His mortgage is $4,000 a month, and he is finding that he has to work all the time to meet his budget. He gives music lessons from his home.

"I don't think anyone would rent it for that amount," he said, and although he would like to sell it the traditional way for $684,000, he said, "I think it's really important to be creative right now."

He would like to set up a lease-option for $3,500 a month, with $2,800 of each month's payment counting toward the buyer's down payment.

The McAlpine-Eig family had two buyer-tenants interested in their Rockville property. One is waiting to sell a million-dollar house after a divorce; the other is a couple who sold a house out of town and had to pay the bank at the settlement table, so they don't have a down payment ready. The man going through the divorce has put down a $3,000 deposit that will go toward the down payment and will pay $2,000 a month, which is market rent but is hundreds of dollars less than their mortgage.