What is a Lease Option?
A renter can sign a lease with an option to purchase a property for a specific price within a certain time frame, which is known as a lease option. In most lease-option situations see a portion of the rent being applied to a future down payment.
Lease options are most popular among buyers who lack sufficient funds for a down payment and closing costs.
How do Lease Options work and what are there benefits?
A lease option is an agreement between you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent is applied toward the purchase if the option is exercised.
This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect.
If you are a seller, lease options can give you several advantages, especially in a slow market. These include monthly rental income higher than the current market rate, top-market value for the property and tax-free use of the option consideration until the option expires or is exercised. Additionally, the renter is more likely to treat the property like an owner.
Read any lease-option arrangement carefully for details on transferring the option and other important concerns.
Where do I get information on lease options?
Contact your trusted DiTo Properties consultant (some of our consultants specialize in such transactions) or investigate lease options at the public library or on the Internet. If you have a real estate attorney, ask if they have any information. Most bookstores have a wide variety of real estate books which have a section on lease options.
If you are considering a lease option, be sure you do your property work first. And have an attorney or financial advisor on hand to review any paperwork before you sign.
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