You want to buy a house but you don’t have
enough to make the down payment or your credit score is not good enough to
apply for a favorable mortgage. Before you resign yourself to being a renter
all your life, think about the lease to own approach to finally having your own
home. It goes by other names. Sometimes this type of purchasing agreement is
called rent to own, lease to buy, or more commonly lease option. The basic idea
is fairly simple. You lease a house and make monthly payments like a regular
rent arrangement but this time at the end of the lease term, you can purchase
and own the house. It’s a good way to buy yourself some time to save more money
and improve your credit while already occupying the place that could turn out
to be your permanent address. Naturally there are several other details you
need to know about this approach.
Investment
The option money or fee is the very first and
probably most important aspect you have to consider. This amount is paid
upfront and goes to the purchase price. Sometimes it could be equal to two or
more month’s rent or in other cases a small percentage of the purchase price.
It can seem like a security deposit, especially when the lease to buy agreement
you’ve entered requires you to pay it initially. However there is one major
critical difference. Unlike the security deposit which is returned to you when
you conclude your lease, the option fee cannot be redeemed. Monthly payments in
a lease to own arrangement are generally higher than regular rent because the
option money is also added to it.
Commitment
Prospective buyers use the lease option way
of purchasing a house as a way of locking in the price of the property. Because
the purchase price has already been agreed upon, any general or local increase
in real property value won’t affect the rent to own house. But the ‘locking-in’
goes both ways. Yes, you have the option
to not buy the house but are you really just going to flush away all that
monthly option money you’ve been paying for two or three years. The use of the
term ‘option’ can be misleading. You have to be pretty sure you’re going to buy
the house at the end of the lease term before you actually enter into any
agreement with the owner.
Preparation
Check out the neighborhood and test the
plumbing. When you’re satisfied and decided about buying the house, start
making plans to ensure you actually have the capacity to do so. Building a
history of prompt payments on your lease to own home is a good way to improve
your credit. You’ll also need to apply for the loan early, at least 2 months
before the lease ends, so that the mortgage is ready by that time. Take note
that some lending institutions offer refinancing plans for lease options. Such
plans are generally easier to apply for and quicker to process than new
mortgages.
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