Lease Options
2. How does a lease option work?
Question: What is a lease option?
Answer: It is an agreement
between a renter and a landlord in which the renter signs a lease with an option
to purchase the property. The option only binds the seller; the tenant has a
choice to make a purchase or not.
Lease options are common among buyers who would like to own a home but do not
have enough money for the down payment and closing costs. A lease option may
also be attractive to tenants who are working to improve bad credit before
approaching a lender for a home loan.
A lease option also may be a way for the seller to move property in a slow
market. Seller advantages include earning above-market rent, retaining all the
property income tax deductions during the lease-option period, and attracting
tenants who will care for the property as though they owed it.
Question: How does a lease option work?
Answer: A landlord agrees to give a renter an exclusive option
to purchase the property. The option price is usually determined at the outset,
but not always, and the agreement states when the purchase should take place -
whether, say, six months, or a year or two down the road.
A portion of the rent is used to make the future down payment. Most lenders will
accept the down payment if the rental payments exceed the market rent and a
valid lease-purchase agreement is in effect.
Before you opt to do a lease option, find out as much as possible about how they
work. Talk to real estate agents, read published materials, and, in the end,
have an attorney review any paperwork before you and the tenant sign on the
dotted line.
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