What is a lease with option to purchase, and is it right for you?
With all the recent foreclosures across the country, many homeowners have taken, and continue to take, financial losses on their homes. These thousands (millions?) of up-until-recently homeowners do not have a tenant mindset. They are not renters. Yet, they no longer have the credit needed to purchase a new home, or possibly even the money saved for a down payment.
What option do they have now beyond rental? What do they do to find their next home?
Their perfect home solution may be a Lease with Option to Purchase.
Lease with Option to Purchase works very much like a rental. The buyer moves into a property owned by someone else and pays them a monthly amount to live there. The difference between a lease with option to purchase and a straight rental is that the lessee/tenant is actually working toward owning the home at a future date.
Typically, two contracts are signed, the rental agreement and the lease option agreement. The additional lease option agreement spells out the terms of the future purchase of the home such as:
- the amount of time the lessee has to purchase (typically 12-36 months)
- the purchase price of the home
- the amount of lease option fee (or “down payment” to move in)
- which actually “buys” the lessee the right to purchase the home at a future date
- is typically required at the time of contract signing
- at purchase, all or part of the lease option fee is credited toward purchase
- any possible seller financing terms
- any other terms or conditions of the lease (ie. – a portion of the monthly lease payment may be given as credit toward purchase)
There are many great things about a lease for the lessee.
One is that they actually have a contract toward buying the home they live in. While their lease is in effect, the home cannot be sold to someone else (like a rental can). This gives them time to save a down payment and work toward improving their credit score. The lessee can experience the pride of ownership that they cannot have while renting. The purchase price is locked in at the time of lease signing so they know exactly how much they need to qualify for. And, at anytime if they decide not to purchase the property but rather to move, they can move on and the contract ends. That’s a freedom you don’t have with an actual purchase and mortgage.
Something to think about!
Please leave your lease option questions in the comments section below. I look forward to helping you soon!