With the market on the upswing, many are stepping up to the home-buying plate. However, for those interested in buying that are not quite financially ready, a lease option may be an ideal alternative.
"A lease option is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property," explains Michael Litzner, Broker of Century 21 American Homes. Lease options, also known as "rent-to-own" options, usually last from one to three years, although periods vary from option to option.
The option only binds the seller, who cannot sell the property to anyone else during the agreed upon lease option time period; the tenant has a choice to make a purchase or not.
"If the tenant does not purchase the property at the end of agreed upon time, the option expires, and the seller can look for an alternative buyer, or renew the option with the same tenant," states Litzner.
Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs.
"A lease option may be attractive to those working to improve bad credit before approaching a lender for a home loan," says Litzner.
However, buyers aren't the only ones who can benefit from a rent-to-own deal. Lease options are often offered by sellers of hard-to-sell properties, and, similar to standard renting, they provide the seller with relief from paying a mortgage on a vacant property.
"Often, these rent-to-own payments exceed market rent," notes Litzner. "However, the buyer should view the payments as the building of a down payment." At the end of the option, if the buyer chooses to make a purchase, the lease payments are credited toward the larger purchase price.
"It's important to note that even though the payments are often higher than market rent, if the buyer defaults, they do not get a refund," says Litzner.
If you're considering a lease option, it's wise to talk to a real estate law professional that is familiar with the guidelines in your specific state, as the laws in each state vary.
For more information on lease options, please contact Century 21 American Homes at 1-800-270-6318.
Century 21 American Homes is one of the fastest growing real estate brokerages serving Long Island, Queens and Brooklyn. To find out more about an exciting career in real estate contact us at firstname.lastname@example.org.