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The Risks and Benefits of Lease Options
When a property has a real estate lease option, it means that you’re basically renting the property with an option to buy it at a future date. The price that you’ll pay to purchase the property in the future is usually agreed upon at the time the paperwork is signed. These contracts are generally done at a time when the real estate market is slow and houses aren’t selling as fast. Today’s current economy, for instance, is an example of a time when leasing a property instead of buying it outright is a popular option.
Houses with this option often have larger monthly payments than one would normally see if renting a property or purchasing a home outright. The excess amount from these payments can be used to purchase the option if it isn’t paid for outright at the time the paperwork is signed. In some cases, this ‘option money’ can be applied toward the down payment if the customer does decide to purchase the home.
There are both benefits and risks associated with going with this option instead of renting or purchasing a home outright. Unfortunately, many potential homeowners that go into these lease agreements do so for the wrong reasons and end up unable to purchase the home. Those with poor credit, for example, may enter into this contract thinking that their credit score will be high enough to get financing at a later point, yet still find themselves unable to get approved. They may also decide to go with this option because they don’t have a sufficient down payment at the time, yet find that they’re unable to save up the necessary amount. If either of these scenarios occurs, the occupant loses all of the option money that they may have paid upfront or that was included in the monthly payments.
One of the benefits that a person entering into an agreement with this option may find is that if the selling price is agreed upon when the contract is originally signed, that price is locked in no matter what happens. This means that is the real estate market takes a turn and the property is suddenly worth more than the original selling price, that original price is still what the customer has to pay should they opt to purchase the property. They can either decide to keep the home, or turn around and sell it on the market for its current value and potentially pocket a nice sum of money.