The ability to build equity is one of the greatest benefits of homeownership, but what happens if you need to extract that equity out of your home? Applying for loans or selling your home may come to mind, but these options may not be available to you, you dread the complex traditional home sale process, and the cost of preparing your house for sale and completing repairs after inspection is simply out of your budget.
Just as important — what if it isn’t the right time to move?
You aren’t the only one in this situation. Let’s look at what home sale leasebacks are, how they work, and how to find out if you can take advantage of one.
Before you explore options to access equity, you may be wondering about the amount you have in your home. Your home equity can be calculated by subtracting the amount owed on your mortgage, any liens attached to it, title fees, repairs, and realtor commission from its value.
Traditional ways to access it typically involve selling your house and finding a new home, taking out a home equity loan or line of credit, refinancing your mortgage with cash out, or entering into a reverse mortgage.
You may have already pursued these traditional options, only to find out you didn’t qualify or that you couldn’t use those methods to access your equity.
That’s where a home sale leaseback comes into play.
Home sale leasebacks are an alternative way to get access to equity without moving out of the house, refinancing it, or entering a reverse mortgage. They aren’t commonly discussed, and most people have questions about them.
Simply put, a home sale leaseback lets you sell your home and then rent it back from the buyer, allowing you to remain in the house for the length of the lease.
A residential sale leaseback could be the perfect solution to staying in your existing house while getting access to the cash you’ve invested in it.
With a home sale leaseback, you will receive benefits like:
Under an Arizona leaseback agreement, you’ll benefit from a streamlined sales process. This means that you won’t have to go through the long real estate process of finding a realtor, preparing your house for showings, negotiating offers, and hoping the closing goes as planned.
Instead, you can find out if you are qualified by answering a few questions and providing pictures of your house. You’ll receive an offer on your house quickly and then decide whether to accept it.
Keep in mind that you are responsible for fees and bills up until the closing date. The money for these, such as prorated homeowners association (HOA) fees, can be taken out of the equity.
The next step is to determine leasing options. With the sale and leaseback of your home, you will be able to sit down with the buyer to discuss short and long-term goals to determine the lease term that works best for you. The lease terms you agree on will let you achieve your goals with dignity and is usually how long you anticipate it will take to pay down debt, rebuild your credit, and plan for your next steps — and home — on a timeline right for you and your family.
Next, you’ll need to decide how you want to pay your rent. There are different options depending on your financial goals.
Full, up-front payoff. If your goal is to eliminate monthly payments, you may choose to invest your equity into paying off the lease. Think of what you could do with no monthly mortgage or lease payments!
Partial payoff. For a balanced approach, you can make a partial lease payoff up-front and then use the rest of the equity as you wish.
Full, monthly lease payments. If you need access to the entire amount of your home equity, you can enter into a standard lease agreement and make normal monthly rent payments.
Once you and the buyer have agreed to terms for the sale and leaseback of your home, you’ll sign agreements for both the sale and lease at the same time.
The best home sale leaseback companies will use standard State or Realtor approved contracts instead of their own shortened agreements that protect only the buyer/landlord. If you are presented with a document that isn’t approved by those entities, you are likely putting yourself at risk, many times with no protection for you and your family.
That’s why we caution you to only sign an agreement that protects your rights and interests.
For example, at The District PHX, we are fast, fair, and honest, so we use standard Arizona Association of Realtors® contracts that lay out protections for both parties.
After executing the agreement and the closing, you’ll see the benefits of the home sale leaseback.
The buyer takes over the responsibilities usually associated with home ownership, such as property taxes, HOA fees, homeowner’s insurance, and repair costs like roof replacement.
With those responsibilities off your shoulders, the leaseback agreement gives you time to decide how to use the cash from your equity, reach your financial goals, and unlock the next chapter in your life.
With The District, a home sale leaseback lets you Unlock (your equity) & Stay (in your home), and we want to make sure it is the right decision for you.
It’s a major financial transaction, so we encourage you to take your time, learn about the process, and ask questions so you make a decision that’s right for you.
We are here to answer your questions, explore your situation, and explain your options. Contact us today.