Lease With Option To Buy

If you’re ready to buy the home of your dreams, but your credit or savings isn’t quite ready yet, a lease with option to buy (often simply called a “lease option” or, somewhat inaccurately, “rent to own”) may help you move in.
Lease Options can be useful home-buying tools, but they’re not for everybody. In fact, some of lease options do not end with the lessee (the renter or prospective buyer) purchasing the home, and while that’s sometimes for a good reason, ask yourself a few questions before you decide to pursue a lease option in general or before you sign one on a particular house.
Can you afford the option money? An upfront payment may be quite small, or it may be 3-5% of the purchase price. All of this money should go toward the purchase price or down payment on the home if you decide to buy the house at the end of the lease term. Unlike a security deposit, you don’t get the option money back at the end of the lease if you can’t purchase the house or decide not to.
Do you plan to stay in the area? You should be fairly certain that you want to buy the house at the end of the term. If you don’t, you lose your option money that you've paid in your monthly payments.
Will you be able to secure financing at the end of the lease term? A lease option can help you get a more favorable loan than you otherwise would be able to, but it’s no guarantee, so you’ll want to be reasonably sure that you’ll be able to qualify for a loan at the end of the term.
Lenders especially like to see stability over two years, so if you’ve been living in the same house, making payments on it, and working at the same place for that long, you may qualify for better loan rates.
Don’t wait until the last minute to apply for a loan. You should begin your application process no less than 45 days in advance of the end of the lease, and to be safe you should probably start a full two months or more before you need to buy the house.
Can you afford the monthly payments on the lease? Typically (but not always) the monthly payments on a lease will include the fair rental value plus option money that will go toward the purchase of the home. Thus, the monthly payments under a lease option will usually be more than you would pay if you were renting the same house.
Lease Option Tips - There are some companies that specialize in lease options, and in some places government programs will buy a house for you and then offer you a lease option. More typically, however, you can just find a house for sale and see if the owner will consider a lease option. A licensed Realtor can also guide you in this process.
Making improvements on the home during the lease term can help earn you equity (so-called “sweat equity”) in the home because the agreed-upon purchase price stays the same. This increased equity may help you get a more favorable loan if you exercise your option to buy. In essence, by increasing the value of the home you are increasing your down payment.
Lease options are typically better options for sellers than most people think they are, largely, if the lessee does buy the house, the seller has accomplished his or her goal of selling the house and in addition, lease option buyers are often willing to pay market value or even slightly higher due to their unique circumstances, so the seller can be sure to get a fair price for the home. During the length of the lease option the seller is able to collect enough rent to cover the mortgage and not incur additional expenses associated with a standard rental. Usually the property is taken care of better because this person intends on it being their home.
Lease option tenants realize this is a great way to acquire the home they want to own. It may not be their ultimate dream home, but they’re willing to start with something less than perfect, often while they straighten out their personal finances and upgrade their FICO credit score so they can qualify for a home mortgage. -Information obtained from various website sources.