Lease To Own: Your Path To Home Ownership
Traditionally, home buyers have gotten into the market by shopping, choosing and moving into a home that they planned to keep for many years. Buyers would put five to twenty percent down on the home and finance their purchase for 15, 20 or 30 years.
Things have changed down through the years, so much so, that in many markets buyers only need to put down three to five percent and they can get loans for 40, even 50 years. Credit the high cost of buying a home in some markets for making it difficult for all but the wealthiest home buyers to purchase a home.
But are there other ways to buy a home without having to lay out huge sums of money in advance? Yes, that would be a “lease to own” an option where a potential buyer can rent a home for a period of time and have at least some of their monthly payment credited to them as a down payment if they choose to go ahead with their purchase. Unlike typical rental agreements, there are some things you need to know about lease to own including the following:
Monthly Rent – You’ll usually pay a higher monthly amount in rent to secure a lease to own agreement with some of that money set aside as your down payment.
For example, if the rent is $2100 on a home, the owner may agree to set aside a credit of $400 toward your down payment. This means that after one year you’ll have $4800 saved toward your down payment.
Lease Agreement – Of course, in your lease agreement, you need to have spelled out the details of your special arrangement. That agreement will note the amount of your monthly rental payment, how much of that payment will count toward a down payment, a time frame established to allow you to exercise your right to purchase the home and at what cost, and more.
Your agreement should include real estate fees, if any, and closing costs including title search, transfer fees, inspections, and more.
No Obligation – With a lease to own option you are not under any obligation to buy the home. This can be especially helpful for the person who would like to get to know the home, the neighborhood or leave their options open to explore other properties in the area or elsewhere.
Keep in mind that whatever funds that have been set aside to enjoy a lease option will not be refunded to you. However, if a job transfer arises or homes in the area decline in value while you are renting, a lease option can work as an escape clause.
Miscellany – When entering into a lease to own agreement, your contract needs to spell out who is responsible for making repairs; paying property taxes, utility bills and insurance; and who will protect your interests in event of a disagreement. In short, you need to hire an attorney to represent your interests to make sure that the lease to own agreement you enter into is airtight.
Lease to own options are not common, but they can make home ownership possible for people who otherwise would not be able to buy a home. Always seek legal advice before entering into such an agreement.