How to Protect Yourself in a Lease Option Agreement
With the rough economic conditions these days, lease option contracts are becoming more popular as a way to purchase a new home. There are many benefits to the buyer and the seller in these situations, but as in any other transaction you owe it to yourself to do your homework. Although there are many legitimate sellers out there, you will find just as many trying to get rich quick. Do what you can to ensure that you don't fall prey to some of the shadier characters out there.
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The main reason people enter into a lease option contract now is because you have less than perfect credit, but are working on improving it. Do you have a plan for this? Do you really know what it takes to improve your credit score? If you need assistance a quick call to a loan officer or a conference with a financial planner can save you headaches and get you on the path to good credit smoothly.
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The next reason people lease with the option to buy homes is not having enough of a down payment. What are you doing to ensure that you are going to have enough to close on your mortgage when the time comes? Talk to a loan officer to get a rough idea of what you are going to need. Not being able to qualify for a loan at the end of the lease option term is the number one reason that many lease option tenants do not ever complete with the option to buy. Do your legwork now, before it becomes too late and you lose all of the extra monies that you put down.
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What is the home you are looking to buy worth? If you were conventionally buying your home you would hire an appraiser to valuate it. Don't skimp on this now, especially if you are setting the sale price of the home at the beginning of the contract.
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Do you know what is lurking within the floorboards of this new house? Just as you would want your lease option home to be valuated, you should get it inspected as well. Would you want to go through all of the work and finally qualify for the loan at the end of your lease option contract and have it fail a property inspection? You deserve to know what condition the house is in before you ever sign anything.
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Okay, you have your credit score inflation plan in hand, you know where the money will come from, and the value and price of the home is in check. If you know there are improvements to be made to the home, know what you are getting yourself into. First, don't underestimate the cost of a project whether you plan to have it done or you do it yourself. Are you even going to be allowed to complete a project during the lease stage? It may be something to talk to your seller about right away. You may have to add into your contract that you will be allowed pre-approved projects, if it is conducted by a professional, and you pay for it. Just keep in mind your expenses, as you don't want to fall short on your down payment, remember!
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If you made it this far, great! Enjoy your new home. If you didn't make it this far, congratulations - you may have just made the wisest financial decision of your life. You don't want to be out a ton of money due to lack of due diligence. If now is not the time, wait until it is. If you don't take it seriously and don't plan for it, you will never achieve your goals.
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Tips & Warnings
In the end, cover your assets as best as you can. Have your contract looked over to assure that it is protecting your interests. You can be sure that your sellers has had it reviewed by their lawyer already.
