Benefits to You When you Lease to Own a Home

When someone is in the market to buy a home, typically they call a mortgage company to be pre-approved. This is where about 75% of the people get stopped, either because of credit issues, self-employment, lack of down payment, or any other collection of reasons. You do have options though, if you can find a seller that is willing to lease option, lease purchase, or owner finance a home to you.

Let’s start with the difference between the two:

What is a Lease Option? A lease option is where you (the tenant) will lease or rent the property for a fixed period of time, usually 12 or 24 months, with the Option to buy the property at an agreed upon option price during the lease term. Note that you have the right to buy the property, but you do not have the obligation to buy it.

What is a Lease Purchase? It is similar to a lease option, except you are under contract to buy the property, so you are obligated to buy the property at the end of the term.

What are the benefits to you as the tenant/buyer?


The Lease Option contract provides many features and benefits to the tenant/buyer. Here are some of the features and benefits to the tenant/buyer associated with a lease option contract.

1. You benefit from any equity growth. In a lease option agreement you will lock in your contract price today. When you exercise your option, the home may be valued much higher than your contracted price you will buy it at. This means you will have instant equity when you close on your home.
2. No Closing Costs Today. You will not have the up front expenses associated with the standard costs associated with the purchase of a home, saving you 2-6% or more. When you buy the house later, you will have closing costs to pay, but they may be able to be rolled into the loan if you are treating it as a refinance.
3. Option money is credited towards purchase. You will get 100% of your option fee credited to you when you close on the purchase of the house.
4. No additional down payment may be required at close. In some circumstances the option fee paired with the increase in value of the property will allow you to refinance the property into your name without any additional funds required.
5. Credit problems don’t have to keep you from getting in a home. There is no underwriter involved in the decision process of a lease option agreement. The landlord/seller will make their own decisions about whether you are qualified to move into their home, and every seller may have different requirements.
6. Time to correct credit or other problems. You will have the full amount of time negotiated in the lease terms to overcome any current credit and/or income documentation challenges that are keeping you from getting a loan now. Sometime things just need time to “age” off of your credit for your credit score to come up.
7. Quick move in. The are no lenders involved to drag out the approval process. If you and the landlord/seller come to an agreement, you could move into the home in a week or less.
8. Try before you buy. You will get the opportunity to purchase the property in the future. You will have the entire lease term to decide if you want to live in that particular neighborhood or house before you decide whether to exercise the option and close on the property.
9. Little to no liability. Your landlord will be responsible for keeping insurance in force on the property since he is the owner. You can get a renters insurance to protect your belongings if you want to (some landlords may require it).
10. The seller will pay the property taxes on the house. Since he is still legally the owner, he will pay the taxes until you buy it.
11. No lengthy loan approval process. The only people involved in the lease option process is the tenant/buyer and the landlord/seller, instead of a lender that can take months to get an approval.
12. Limited maintenance responsibility. In a normal lease option the tenant/buyer is responsible for all repairs up to a certain dollar amount, and the landlord/seller is responsible for repairs over and above that amount. In other words, the landlord/seller generally covers all the major repair concerns ( roof, a/c, major plumbing, etc…).
13. Privacy. In a lease option only the name of the landlord will appear in the public records until you exercise your option, so nobody will know you are buying it.
14. Peace of mind. You will have a home that you can maintain and improve while working toward ownership rather than renting.
15. Possible rent credits. You may choose to make monthly option installments to build more option money thus making direct principle reductions rather than principle and interest payment in a conventional loan.


What are the drawbacks to doing a lease option or lease purchase?

You do not own the home, so you do not get any of the benefits of ownership, such as tax write offs and homestead exemption.

Also, there is always the chance that you will be paying the seller rent every month and they are not paying their mortgage. This would lead to a foreclosure where you would both lose out.

What paperwork do you need to secure a lease option/lease purchase?

There are 2 main documents that you will sign with the seller. You will have a lease agreement that covers all of the terms of your rental. Separately you will have either and OPTION to purchase (the right to buy it) or a contract for purchase (the obligation to buy it). This document will spell out the terms of the purchase, including price, time frame, who will pay closing costs, and any other terms you want to clarify (such as price increases if you want an extension, what will happen if you don’t close, etc.).

The seller may also have you fill out a tenant application with your employment history, income, and other credit information. The seller will also probably want to see your credit report. Remember, they will work with a lot of credit issues, but if you have 2 foreclosures and 3 evictions in the last 5 years, they may not be so willing to work with you.

If you are interested in a Lease Option / Owner Financed deal please contact us to be approved for a property we have currently or may buy in the near future.

We can be reached at 888-turbo-78.