| Q: | What is a lease option? |
| A: | When
a renter signs a lease with an option to purchase the property for
a specific price within a certain time frame, that is called a lease
option. In most lease-option situations, a portion of the rent is applied
to a future down payment.
Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs. |
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| Q: | How do lease options work and what are the benefits? |
| A: | Most
lease-option agreements specify that a portion of the rent on the property
in question is applied toward the purchase if the option is exercised.
This is referred to as rent credit. Institutional lenders accept rent
credits as part of the down payment if rental payments exceed the market
rent and if a valid lease-purchase agreement is in effect, a copy of
which must be attached to the loan application.
For sellers, lease options give them several advantages, especially in a slow market. These include a monthly rent higher than market rent, top-market value for the property and tax-free use of the option consideration until the option expires or is exercised. Also, the renter is more likely to treat the property like an owner, tax-free use of option consideration until the option expires or is exercised. Lease-options should be read carefully for details on transferring the option and other important concerns. |
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Copyright 1999 Inman News Features
