Can Lease Option Make You a Wise Homebuyer?

Can Lease Option Make You a Wise Homebuyer?

You finally found your dream house. Hurray!

The big problem is you don’t have enough money to pay for the down-payment. Oh, no!

We all have our moments when we are very eager to grab something but the only force that is stopping is our inability to pay for that thing.

Are the following reasons stopping you from owning a home?

• You have a bad credit.
• You recently had a foreclosure.
• You just went through a short sale.
• You have filed bankruptcy in the last two years.
• You do not have enough money to fulfill the down-payment requirements of your bank.
• You cannot afford a property but there is a big chance that you can in the next year or two.

If you answered yes to any of these questions, then you can consider a LEASE OPTION.

Understanding Lease Option

A lease option, also called rent-to-own or lease-to-buy option, is a contract that allows a prospective homebuyer to own the property after a set period of time. Aside from paying a standard monthly rent, the homeowner will also pay a monthly premium that will be credited to the buyer’s down-payment and will be applied to the final sale price.

This idea appeals to both the struggling homebuyer and the eager home seller. But before you sign a lease option contract, consider the benefits and risks first.

Benefits

The tenant/buyer realizes ownership sooner. He does not have to wait for his credit score to improve to be able to own a home.

1. The renter will have a chance to repair his credit score and build more income as he rents the house.
2. The lease option contract gives a guarantee to the renter that he is the only person who can purchase the property at the given time.
3. The renter has the ability to lock-in the purchase price which can give him a possible profit in case the home price increases in the future.
4. Depending on the agreement, the renter can decide not to buy the home if he finds that there is something seriously wrong with it.

Risks

1. The renter/buyer will not receive a refund if he decides not to buy the house after the lease agreement expires.
2. The buyer might find himself still unable to buy the house down the road, which is a waste of money.
3. The renter will have to carry the burden of paying for the necessary repairs inside the home.
4. Since the title and mortgage remain in the name of the seller, the renter might be evicted from the home if the seller missed paying his mortgage.
5. The lease option is a risky transaction primarily because many scammers prey on people who have low credit score and are desperate in buying homes.

Understanding the risks and benefits of lease option will largely equip you with the right knowledge and will help you arrive at a sound decision. Nothing is perfect in this world, and that includes the lease option.