So you found a house you like that is offered as lease option. What exactly is a lease option? In simplest terms, it’s a way you can participate in home ownership if you’re not exactly ready to purchase a home. There are two parts to this:
An option, or purchase agreement, that allows you an extended time to purchase the house for an agreed upon price. At the same time, you’re getting a lease, so for that period of time, usually anywhere from 6 months to five years, you’re also living in that property and making monthly payments. In some ways, it’s the best of both worlds — you lock in a price and participate in home ownership — even if you’re not exactly ready to own a home.
- You are allowed to make some modifications to the property, a benefit which is not allowed in a normal lease. Of course any changes need to be of professional workmanship and approved by landlord.
- Because you have locked in a purchase price, you benefit from any changes in property value due to inflation, market changes, and and your own improvements to the property.
- You get to live in a property while you repair your credit or change your situation (i.e. say you are getting divorced and don’t want to own another house until that is completed). Nothing is more irritating than moving into a home you know you are going to move need to move out of again in just a bit.
- Having that agreement to purchase gives you a kind of partial ownership known as “equitable ownership.”
- With Realty Trust Services lease options there is a 90 day warranty on all repairs unless otherwise agreed to in writing. After that you are required and able to maintain the property yourself and don’t have to deal with the inconvenience of having to ask your landlord to do repairs and then open up the property at their convenience or that of their maintenance people.
The option fee which is the money you pay in order to have the right to purchase the property (an option agreement).The owner cannot sell the property once you’ve paid your option fee or and signed your option agreement. The option fee is not a security deposit and is non refundable so you want to make sure you will be able to complete your agreement. The option fee varies between 2 months rent and 10 percent of the total purchase price of the house and typically varies based on the condition of the house, the location of the house, the length of time of the option agreement and the corresponding rent amount. The option fee paid at beginning of agreement will be applied towards purchase as a down payment if tenant buyer chooses and is able to exercise their option to buy per their agreement.
There are potential opportunities to negotiate an option where some of the monthly lease payment is conditionally applied towards a future down payment if and when property is purchased. That is not a guaranteed term, but it can be included in the negotiations.
Overall lease options can be an excellent way to get the benefits of leasing and owning a home. However just like home ownership lease optioning a home is a significant agreement and you want to make sure to get any home you are leasing optioning checked out by a trusted professional before moving forward with an agreement.