How to Do a Lease-Option on a Home

A lease-option is an agreement between a buyer and a seller that allows the buyer to lock in the future purchase price, save money for a down payment and buy the property in the future at current prices. It can prove to be a win-win situation.

Difficulty:

Moderately Challenging

Instructions

1. Agree with the seller on a purchase price.

2. Agree on the term of the lease. This will be the maximum length of time you want the opportunity to exercise your option to buy.

3. Determine a market value for your monthly rent. (This is the amount a person would pay to simply rent the property.) Then add $25 to $200 per month to be applied toward the future down payment of the home. (This is not a requirement, but it helps you accumulate money for a down payment.)

4. Agree upon terms regarding the exercise of the option, such as the escrow period and financing.

5. Determine who will pay for inspections, work and warranties when the time comes to complete the purchase.

6. Go to your local Board of Realtors Association or real estate company and purchase a lease-option agreement form.

7. Handle the transaction as a lease until you are ready to exercise the option.

8. Exercise the option in writing.

9. Open escrow or contact a real estate attorney to handle the transaction.

Tips & Warnings

• Escrow is not required until you exercise your option to buy.

• You may want to have a real estate attorney review the contract before you sign.

• You may be asked to put up option money - typically $1,000 to $5,000 paid to the seller - for the privilege of having the option to buy.

• All option and additional rent monies paid to the seller are nonrefundable if you do not exercise the option to buy.

• You must delineate all terms of the purchase at the time you make the lease-option agreement.

• If home prices go down, you will have to choose between buying the property at the originally agreed-upon higher price and losing the option money.