Lease Option Homes

Are you one of the many people who are renting right now and wish that you could own your own home? Millions of Americans are thinking the same thing, but they've given up the hope to one day have that dream home because their credit is rough, or they just don't know how they can save enough money for a down payment.

Well, it doesn't have to be that way. If you can afford to rent, you can also afford to 'rent to own'. I mean, if you're going to be making a monthly payment anyway, why not have a portion of the payment going towards your ultimate purchase? It's a great way to ease your way into home ownership, and the best part is, you can live in your dream home NOW, while you're work out all the details that are preventing you from getting a loan.

A lease option is simply an agreement between a seller and a tenant-buyer to allow you to lease the home and have an exclusive option to buy it at the end of the lease term. A portion of each monthly payment is usually applied towards the purchase, and the price is locked from day one so you can benefit from market appreciation even during the lease period.

Let's take a quick look at the process:

FIrst, you need to find out your current credit situation, so contact a mortgage broker, have them pull your credit and see where you stand. A good mortgage broker should be able to tell you what you need to do, and how long it may take to clean your credit up. He or she will also give you an idea of how much house you can afford, so you can shop in a reasonable price range.

Next you need to search for a house that's available through a lease option. You can do a Google search for "rent to own" and the city that you live in, or "lease option homes" and what comes up in the search. Craigslist often has many homes available for lease with the option to buy, and you can even look at the 'for sale by owner' ads and end see if the seller is willing to enter into a lease option agreement.

Most lease option homes will require you to put down a lump sum payment, called option consideration, when you start the lease. This usually runs anywhere from 1-3% of the purchase price, and it applies to the purchase. It's also non-refundable if you decide not to buy, or otherwise default on the lease agreement, you'll forfeit this money.

The monthly payment will usually be a little higher than a standard rent payment, and a portion of that payment will be additional option consideration and applied towards the purchase. That's the magic of a lease option as it acts as a forced savings plan to help you build up enough money for a down payment to get a mortgage.

The longer the lease term that you can negotiate, the better, because you'll want plenty of time to clear up any credit dings and save up the minimum amount required to ultimately get a mortgage. At the time of this writing, FHA loans will require 3.5% down, so add up your upfront option consideration to the monthly accumulation of additional option consideration and you can see how long of a lease term you'll need to save the 3.5%. For instance, if you find a $200,000 house on a lease option, figure that you'll need to raise at lease $7000 for your down payment. If you pay $4000 upfront, and receive $200 additional for each month of the lease, by month 15 you'll have saved your required $7000.

Speaking of purchase price, do your research so you know the market. Zillow.com or Cyberhomes.com are decent sites to find market values, so you know you're getting a decent deal. Just remember, that a lease option stipulates a purchase price in the future so if the market appreciates over and above the purchase price that you negotiate, you get to keep the extra equity if you buy.

Lease options are a fantastic way to transition from renting to owning.  With all the benefits of lease to own, what are you waiting for?  Get out there and find your dream home!