Brief Explanation Of Rent To Own Options

A Brief Explanation of Lease Options
Lease Option is short for “Lease with an option to purchase.” This basically means that you have the exclusive Option to purchase the property you are renting for a fixed period of time. Exclusivity simply refers to the fact that nobody else can purchase the property during the duration of the Lease Option. This exclusive option is given to you in a document that is signed at the same time as the lease. It provides many terms to you and the seller. These terms include the length of the Option term, the purchase price of the house, the proper process for executing the Option, and the amount of the down payment. Lease Options always include a down payment, which is applied to the purchase price of the home if and when the Option is exercised.
Example:
After seeing the property and reviewing the rent and down payment requirements, you decide to “Rent to Own” the house at 1234 Main Street. The terms are $795 per month with $2,000 down and a purchase price of $85,000. You meet with the property manager to pay the down payment and first month’s rent. You will also sign a lease and separate Lease Option at this time. You will make monthly rent payments of $795 to the manager until you decide to exercise the Option. When you exercise the Option, you will notify the manager who will assist in preparing the Purchase Agreement—a document always needed when buying real estate. You will then work to finalize financing for $83,000—the final price after deducting the down payment. Once financing is secured, there is a closing with at Title Company and you officially own the home.
Buyer’s/Renter’s Responsibilities
Aside from paying the down payment, rent, and signing the appropriate documents, the buyer has other responsibilities when pursuing a Lease Option. First, the buyer has to pursue mortgage financing and be eligible before the expiration of the option term. Urban Pharm can provide referrals to mortgage lenders if needed. If the buyer isn’t immediately eligible, it is their responsibility to position themselves to be eligible before the option expires. This often involves working to improve their credit, employment, and assets. A loan officer or credit specialist is a good tool to guide you in the right direction. Finally, in “Rent to Own” situations, the buyer is generally responsible for taking the position of home owner during their rental period. This involves paying all utilities, including water, making any necessary repairs to the home, and maintaining the exterior (mowing the grass, snow removal, etc.).
Benefits of Lease Options
Lease Options have many benefits. First of all, it makes home ownership much easier. Financing for Lease Options is generally easier to obtain due to the fact that the home’s equity is used as collateral. When you buy a house outright without an option, the bank will not count this equity. Second, Lease Options allow the buyer to “test drive” the house before buying it. They can become educated on all of the positive and negative aspects of the home before making the investment of purchasing it. Finally, the buyer can treat their home as their own while renting it. If they are confident that they will be purchasing the property, they can make improvements or changes to the property to better suit their needs and tastes.
Negatives of Lease Options
Yes, Lease Options have their negative points as well. First, the down payment is nonrefundable. It IS NOT a security deposit, so it will not be returned should the option not be exercised. So, we highly recommend that you choose your Lease Option home carefully and verify that you will be able to obtain financing for the property prior to the Option expiration. Second, the buyer is responsible for all maintenance while they rent the property. This maintenance should be minimal as all of Urban Pharm’s properties are recently remodeled, but many issues are impossible to foresee.