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A lease option is a combination real estate rental, sales and finance technique. It is a property lease, similar to automotive leasing practices, with a fixed time period giving tenant’s an option to buy the property at an agreed price during the lease term. In many if not most of lease-option situations a portion of the rent is applied towards a future down payment. This is one of the primary attractions of a lease option purchase where a family struggling to have enough funds for a down payment or closing costs can still get into a home and begin benefiting from this essential asset.
How does a lease option work?
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A purchase price that satisfies both the buyer and seller is determined upfront and in writing.
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The buyer and seller agree on a time limit for when the buyer must commit to buying the home. This stage provides a lot of flexibility for a buyer trying to save money for the down payment.
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An option consideration payment is made upfront to the seller from the prospective buyer. This gives the prospective buyer the OPTION but not the OBLIGATION to purchase the property for the pre-determined amount - however the Seller MUST sell at the pre-determined time for the pre-determined price if buyer desires to do so. The option payment amount is typically 5-15%. This money is non-refundable if the buyer later decides against purchasing the home. For this reason, buyers should be prudent and thoughtful when making this decision.
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A monthly payment is made to the seller similar to renting. In some cases, a portion of the payment is credited toward the purchase upon buy. The great benefit of putting money towards the down payment on a monthly basis is it acts as a forced savings account, with money being directly paid to the seller.
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The transaction will be handled as a lease until buyers are ready to exercise the option.
Benefits of a lease option for the buyer:
In addition to the financial advantages of a lease option, a buyer benefits by living in the home they might want to purchase. This puts them in a prime position to determine whether or not the home will be compatible with their wants and needs. After experiencing neighbors, schools, and the functionality of the home, a buyer is much more educated on the value of their potential purchase, improving the buyer’s ability to make a wise decision on the home.
Benefits of a lease option for Rustic Sparkle as the seller:
We have found that the lease option buyer is much more likely to take better care of the unit than a traditional renter because they will treat the home as if it was (or will become) their own. For this reason, we are hopeful as we offer this program that it will be a win-win for everyone involved.
Click here to tell us about yourself and see if we have a house for you.
Although there are a lot of benefits of purchasing a home through the lease option, anyone getting involved should do their own research making sure that it is the right option for them.
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