Home Lease with Option to Buy

Home Lease with Option to Buy
by Loni Barrett, real estate investor

Why Lease-to-Own Instead of Renting?

There are some major benefits to leasing a home rather than buying one now, especially if you’re presently unable to qualify for a mortgage. Be sure to consult your mortgage broker to review your specific circumstances. You may qualify to buy now. If not, a home lease with the option to buy later may be a great solution for you as you can reserve the home for later purchase with no competition.

Build up your down payment over time

You begin building equity in your home from the moment you move in. Rather than having to put down a large down payment that is required for a home purchase, you can instead let your down payment build up over time. You will put down an earnest money deposit to hold the home. Make sure you understand whether the homeowner intends to credit your deposit toward your down payment at the time you exercise your option to buy. Additionally, be sure you understand how much of your monthly payments will be applied to the purchase down payment as well. Frequently, the owner will allow you to determine the monthly amount of these payments during the negotiation of the lease-to-own agreement.

Avoid competition for your dream home

Your earnest money deposit locks your ability to purchase the home after a specified period of time. The price is usually based on a pre-determined price at the time of the initial lease. You avoid competition because you are the only buyer. Even in a competitive housing market, you will have no competition! Be sure you understand the lease agreement terms and what the price will be when you exercise your option to buy.

Save money on fees

You will only pay the predetermined price for the home, less the amount of your earnest money deposit and monthly down payment allowance. There will be no additional realtor fees and sometimes the owner will even cover the closing costs. Look for this information in your lease agreement.

Time to build up your credit

You will not be required to pass a mortgage credit check at the time you lock in your lease with the option to buy. Perhaps you’re still paying down some debt, or you are waiting for negative credit data to fall off your report. Whatever the reason, you can use the duration of the lease option agreement to build your credit up. I will publish a helpful checklist of credit score factors, credit resources and tips to help improve credit score. I want you to be able to buy your dream home!