People who are planning to buy a home usually face the problem of their credit score not being good or they not possessing the required amount for a home down payment. If their credit history is not up to the mark, they may face issues in obtaining a home loan. The best method for getting rid of this problem and building a good credit score is to choose a lease option to buy a home.
What is a Lease Option to Buy a Home?
Also known simply as a 'lease option' or 'rent to own', this is a contract which allows the home buyer to purchase the home at a later date, just because he is falling short of finances or does not have a good credit score for obtaining a home loan. The contract consists of a condition wherein the tenant will live in the house on rent, paying a certain amount to the seller, and at the end of the contract having a choice to buy the house or leave it.
Difference Between Lease Option and Lease Purchase
There is a common misconception in first time home buyers regarding a lease option and a lease purchase. The difference in the two is that in the former one, the buyer is left with a choice whether to purchase the property or not at the end of the lease. Whereas, in the case of a lease purchase, the buyer initially enters into a lease agreement that he will surely purchase the property after the lease period is over. If he does not buy the property, the contract becomes void and both the parties then have to go through legal formalities of a broken contract. A majority of people thinking of home buying prefer lease option instead of lease purchase.
Important Specifications of Lease Option to Buy Home
At the end of a lease option contract, the tenant can purchase the property at his own freewill, without any compulsions from the seller. The tenant will any way have to make some payments on a monthly basis, which is generally termed as 'option money'. This money is the amount paid to the seller for obtaining rights of purchasing the property in the future. This amount can also be considered as down-payment at the time of the purchase.
While making the lease option contract, the renter can have a choice of either buying the property at a future price at the end of the contract or at a prescribed price when the agreement was made. The normal time period of the lease option ranges from one to three years, but is negotiable and can even extend up to 10 years. During the time of the lease option contract, other buyers are not allowed to purchase the property. If during the time of the lease option, the buyer raises his credit rating, arranges for down-payment, and gets a loan; he can easily purchase the property.
I hope after reading this article, you might have got useful information about lease option to buy home. Before getting into the lease option agreement, go through all the negotiations and conditions carefully and consult with a trusted realtor.
