Tuesday, March 14, 2006

What is a Lease Option?

1. A Lease Option?

A lease option is your contract/agreement to purchase the property at a specific price today, to be exercised at some time in the future.

When you enter into a lease option, you enter into a Lease agreement (Rental) for a stated period of time. The Lease agreement contractually allows you to buy at today’s price as long as you purchase at a specified date in the future. (Option)

Many sellers use Lease Options as a tax planning strategy. A Seller may wish to postpone paying taxes until a later date, or avoid a lender’s penalty for paying off a loan too early.

2. How do I know if a Lease Option is right for me?

Lease Options can be right for many Buyers especially if they are faced with special circumstances:

a. Buyer would like to own real estate right now, but may need additional time to clear up financial issues.
b. Buyer does not have enough money saved for the down payment.
c. Buyer is cleaning up credit and would like to buy at a lower interest rate than currently being offered with existing credit.
d. Buyer is purchasing the property for a specified length of time to capture possible equity appreciation.

3. How does a Lease Option Work?

With a Lease Option the seller gives up the future appreciation of the home’s value in exchange for the buyer option money (your down payment). In the meantime the seller has a great tenant (you) leasing the property at a rent that covers the sellers payments. The buyer has a guaranteed price and the potential appreciation of the homes value.

As a bonus to the buyer, the seller credits the buyer a portion of the rental payments towards their down payment when the buyer exercises the option to purchase as per the agreement.

4. What is the first thing I need to do?

There can be many hidden obstacles in a Lease with an Option to Purchase that may prevent you from owning the home of your dreams.

With over 30 years experience I am here to protect you from this possibility. Call or email me with your questions.