What is a lease option?
Updated: Jul 5, 2021
A lease option is a powerful tool in the world of real estate.
A tool is an item of use for a particular application. All tools are not useful in every situation and anyone who would tell you otherwise is trying to sell you something. The sophisticated craftsman understands this and therefore has a toolbox, tool belt or shop full of specialized tools.
The real estate industry is the same way. There are different tools designed to achieve the desired results.
There are different ways to purchase homes other than the conventional method. The sophisticated home buyer will understand all the tools so that they can make wise decisions.
Like all tools lease options have benefits and drawbacks so let's learn about them a little more so that we can make wise decisions.
What is a lease option?
A lease option is a contract used in both residential and commercial real estate. In a lease-option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property.
A lease option is different from a lease purchase contract, in that a lease purchase binds both parties to the sale, whereas in a lease-option the buyer has the option to buy but the seller is legally bound to the sale. Click Here to learn more about our lease purchase program.
There are different ways to structure these agreements but they come down to some simple parameters. 1. When does the option to purchase expire? 2. Are there any additional fees for purchasing sooner or later? 3. What are the fees to consummate the agreement?
Lease option contracts come in three configurations.
Straight line lease options
Sandwich lease options
Lease option assignments
Click the link to read more about the different types.
When would a lease option be a good idea?
A lease option is good to look at as an option when you cannot currently qualify for institutional financing. We see this arrangement working the best for those who have credit issues, don't show income because they are self employed or want to take advantage of an opportunity they couldn't quickly qualify for.
Let's look at some examples.
Example 1
Say you are moving to a new area for a job transfer so you try to get prequalified at your local bank but your turned down for a loans because your credit score it too low. Those credit issues have caught up to you and are blocking the way to purchasing a house. You can afford the loan now but the lending agencies just won't take the risk. Repairing credit takes time and could take a year or even two years. This puts you in a pickle you'd rather not rent and move twice, are excited to put down roots or lock in a price in a fast growing housing market.
A lease option would be a great fit. It would enable you to lock the purchase of the home in a contract while you rebuild your credit. Then once you qualify for conventional financing you buy the home.
Example 2
You have your own basement remodeling business which provides for you well but you don't want to pay taxes in that higher tax bracket so you make the decision to write off a lot of your income in your business expenses. This is totally legal, however, the next year you apply for a loan and are turned down because your Debt-To-Income ratio is too high. Housing prices have been climbing and you would rather secure a home now instead of waiting another year for your taxes to reflect your income.
A lease option would be a great fit. It would enable you to lock the purchase of the home into a contract to purchase when you qualify for the home.
What lease option contracts does leaseoption.us offer?
Leaseoption.us offers a lease option program where private lenders will buy a home for you with this lease option contract in place. Then when you are ready to qualify for conventional financing you buy the home from them.
This arrangement is called a straight line lease option where you as the buyer are in a straight relationship with no middle man. In this program leaseoption.us takes plays the whole of a lease option assignment in which the buyer pays a fee for the our team to originate this contract and assign it to an investor.
If it looks like our lease option program would work for your situation we would love to help you.
Click the link below to see our lease option programs.
