Lease Option Homes | Buying a Home with a Lease-Option?

Find out how to buy a home using a lease with option to buy.

If you are a renter who wants to take advantage of the fantastic real estate bargains out there today but you are not ready to buy just yet, a lease with option to buy might be the best solution for you right now.

With lease option homes, a person agrees to lease a property for a specified period of time. The tenant has an option during the term of the lease to purchase the property for a pre-determined price. This is as close as you can get to "try it before you buy it" in the real estate industry.

A lease with option to buy is also referred to as a rent-with-option-to-buy, rent-to-own or just simply a lease-option. In many cases, a portion of the rent paid is applied toward the down payment.

Many homes and condominiums are for rent today because the owners could not sell them. Most rentals listed on the Multiple Listing Service (MLS) will indicate whether or not the owner is willing to do a lease with option to buy as opposed to just a standard lease.

Leases with Options to Buy are Back

During the period of no down payment loans for borrowers with almost any type of credit, leases with an option to buy were not that popular. Why lease for a year or two when you could buy right away?

Benefits for Home Buyers

Most home buyers use lease option homes because they need to save up for a down payment or they need to improve their credit score to the point where they qualify for a mortgage loan. Home buyers also get to make sure that they like the home and really want to own it. In addition, if home prices continue to decrease then tenants are not obligated to go through with the transaction.

Benefits for Sellers

If a seller can wait it out, a lease option home can be a great tool to lock up a buyer. Often, a buyer is close to qualifying for a home and just needs some time to improve a credit score or save a little more money. In some cases, sellers may have a capital gains tax issue where they need to hold the property long enough to avoid short term capital gains treatment of any profits on the sale of the property.

Lease with Option to Buy Procedures

The first step is for a home buyer to get pre-approved for a mortgage to find out how far from qualifying they are, what steps are required to get approved and how long they will need to become a pre-approved borrower. A home buyer can then go to owners and with the help of their loan officer make their case to an owner as to why a lease with option to buy makes sense for their individual situation.

Home buyers should approach owners renting their property to ask for a lease with option to buy. But they should also approach home sellers and ask them if they would consider a lease with option to buy scenario. Many sellers with no luck selling for many months may if they are able entertain your offer.

Once you find a property and a willing seller, the owner and tenant sign a normal lease with an agreed-upon monthly rent and security deposit. At the same time- or as part of the lease agreement - the owner and tenant agree that the tenant can buy the property at some point during the term of the lease. The price is set at that time as well.

The owner may or may not credit some portion of the rent back to the tenant for use as a down payment. In this case, the seller can credit whatever amount he wants to the buyer. However, when the buyer goes to apply for a mortgage loan, the lender will not permit the entire rental payment to be counted toward the down payment.

Mortgage lenders will only allow home buyers to use money paid to a home owner toward a down payment to the extent to which the payments exceed fair market rent for the property. For example, if you rent for $2,000 and the fair market rent is $1,500, you can count that extra $500 per month toward your down payment. On the other hand, if the fair market rent is $2,100 per month, you cannot count any.

Lease option homes can work for borrowers who need the extra time to get a mortgage approval.

For a free mortgage pre-approval and an exact rate quote to help you refinance your Chase or Washington Mutual mortgage loan, please email us or call us at 1-877-868-2503.

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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