Using a Lease Option to Buy your New Home

by : Don Levy

Lease With Option To Purchase is the full name of this method of purchasing a property. Other terms that are basically the same are rent or lease to own or purchase or some other combination of these terms. Different parts of the country use different terms. They all work about the same way, which is: you lease a property and secure an option to purchase the property for an agreed upon amount within a certain time frame.

A simplified example of a lease option would be: you lease a property for 2 years and pay the owner a fee of $1,000 as an option fee. This means that you have the property tied up for 2 years during which time you can buy it or not. The owner can only sell it to you. If you decide not to buy you usually forfeit the option fee. If you do buy the option fee is normally credited to you.

12 reasons to consider a lease option if you want to buy a home in the near future:

1. The lending requirements are making it too hard to get a loan (as is happening now).

2. You don't have a down payment. (or enough of one to qualify for a loan).

3. You're in the process of fixing your credit or establishing credit to get a loan.

4. You haven't been employed in your field long enough. (Recent graduate).

5. You don't have a rental history. (living with parents).

6. You can't afford loan payments at present. (you'll be able to in a year or two).

7. You can tie up a better property now and buy when you can afford it later.

8. You can buy a fixer and negotiate the rent so you can put the money into repairs.

9. You can negotiate a credit on the rent each month. (like a savings account).

10. You can treat the property as your own and decorate it the way you like.

11. You know that as long as you keep your end of the bargain the property is yours.

12. The property won't be sold without your permission.

These are the principal reasons that a lease option makes sense to a very diverse group of people, especially in light of the real estate situation today. Because of the lending industry problems it is harder than ever to get a loan unless you have a good sized down payment and sterling credit. If you are just starting out, have had some problems that you are fixing or just need a little more time to get the down payment a lease option makes a lot of sense. Many people want to live in a better home that they can afford and a lease option will let them do that because they can live in it now and buy it when they're able to afford it. They can also buy a fixer in a better area than they could afford now and negotiate to make repairs with part of the lease payments or instead of an option fee. This way you can make the home exactly as you want.

Due to the real estate problems of today you have to make sure you're dealing with someone who won't get into trouble and possibly lose the property. One way to do this is to put the lease payments into an account where they are automatically paid to the lender. Make sure the taxes and insurance are paid up when you move in. You could also arrange to keep those current through the same account as the loan payments if they are separate.

For more protection you should use an attorney and possibly a real estate agent. Other ways to protect yourself are: use an escrow, get title insurance and have the lease option notarized so you can record it. You want to be sure you can get a clear title when you’re ready to buy your home.