| What
is a lease option? |
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| This basically means you
are leasing or renting a property with an option to buy it at a future
date. The future price of the property should be fixed at the time
the lease-option is signed.
Usually there is an up-front payment of
some amount to purchase the option. The amount can vary. Sometimes
the monthly payment is larger than normal and the excess is used to
purchase the option. In some cases, the option money can be applied
toward the down payment for the later purchase of the home.
Lease-options are usually done during a slow real estate market.
During a hot market, the seller can simply sell the home in the
regular manner. |
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| What
risks do a lease option hold for the buyer? |
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| Individuals who attempt
to buy homes on a lease-option rarely end up buying the home. This
often has to do with the reason they try to buy on a lease-option.
They usually cannot qualify for a home loan and expect that they will
be able to qualify after a period of time. Later, they find they
still cannot qualify - whether it is because of poor credit, lack of
income (documentable income), or lack of savings to have a large
enough down payment.
If this happens, you lose any option
money you might have paid up front or as part of your monthly payment. |
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| What
benefits do a lease option hold for the buyer? |
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| I'll give you one recent
example:
A couple got involved in a lease-option
some time ago, just before the real estate market turned. As a
result, by the time the option was about to expire the home was worth
much more than the option price. They exercised the option to buy and
sold the house in a double-escrow, pocketing a tidy sum. Of course,
they could have simply bought the home, but they still could not
qualify for the home loan.
It would have been much easier if the lease-option had a clause
allowing the couple to "assign" the option to a third party, but most
sellers are savvy enough to include a "non-assignable" clause in the
lease-option contract. |
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| What
benefits do a lease option hold for the seller? |
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- They often get to sell the house at
a higher price than they could sell it in a normal transaction.
- They can sell the house during a
slow market.
- By being able to collect a larger
monthly payment than they could obtain in a normal lease, the
property "cash-flows" and they don't have to come up with money out
of their own pocket each month to make the mortgage payment.
- They get some up-front option money
and when the buyer cannot exercise the option, they get to keep it.
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| I
would appreciate knowing how a contract is worded in a "rent with
option to buy" situation. Or is there a site I could download such
sample forms? |
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| I found a place where you
can buy such a form for $14.95 on line. The URL is
http://kaktus.com/opt/opt4.html.
The lease part of the form is pretty
straightforward most of the time and is just like any other lease.
The option just means that you have an "option" to purchase the home
within a specified period of time. It makes sense to specify the
option price in the lease/option contract. |
