- Leasing to own a property is called a "lease option." A lease option happens when a tenant and a landlord enter a lease agreement that allows for the lease of a property for a set length of time and an option to buy the property at the end of the lease term. During the lease term, the seller cannot sell the property to another person. More sellers tend to offer lease options when the real estate market is slow.
- Lease option agreements can be made for any length of time. Six-month and one-year terms are the most popular. At the onset of a lease term, the tenant usually pays a down payment equal to one months rent that does not go towards the purchase of the property. Some agreements require a much larger down payment. Generally, if a large down payment is required, it is applied towards the purchase of the property. The monthly payment that a tenant pays to a seller includes rent at the going market rate and an additional fee that goes towards the down payment of the property. The rent portion of the payment does not go towards the down payment of the property. At the end of the lease term, the tenant has the option to buy the property. If he chooses to buy the property, he must get a home loan with a finance company. The additional fee that was included in the buyer's monthly lease payments is applied towards the down payment for the home loan. If the tenant does not choose to purchase the house, he loses all of the money that he paid into the property. Lease option money is not refundable.
- Lease options can be a good way for people to buy homes when conventional financing is not an option due to lack of funds. If a buyer does not have a down payment, a lease option can help her to save one. A lease option can also be good for buyers who are having minor credit problems. During the lease term, the tenant can fix her credit problems so that she can qualify for a home loan at the end of the lease term.
- Lease options can be a big gamble for buyers. If they are unable to get a home loan at the end of the term, they lose the option to purchase the home and they lose all of the money they paid into the property. Lease option agreements lock in the price of the home at the beginning of the term. If the home declines in value, the tenant may not be able to get a home loan. If during the term, the tenant is late on his payments, the seller can have him evicted from the home. If the tenant is evicted, he loses all the money he put into the home as well as the option to purchase.
Comments
leasingtobuy said
on 6/2/2009 If the buyer is paying additional monies towards the down payment every month, it MUST be on a separate payment, or on a separate check with the memo stating "down payment" etc., otherwise the lender will not allow it towards the down payment. Contact me with any questions.