Many who do not have financial resources to purchase a house and is tired of living in an apartment, tend to opt for the ‘rent to buy option’, which is also known as ‘lease option’. But before jumping in, there are many aspects a buyer should consider to prevent a lease purchase agreement ending unfavorably.
What is a lease with option to buy?
When signing a rent to own option agreement you agree to pay a rent that is marginally high than the current market price, during the period of lease. And upon purchasing the property on a date before the lease option expires, the seller will refund a portion of the rent paid. In most cases, this proportion exceeds the additional payment made each month above the market rate.
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Is lease with option to buy a wise decision in a buyer’s perspective?
As everything, lease with option has its own pros and cons.
Advantages of lease with option to buy are:
- A faster path to homeownership
- Eliminates the financial barriers that prevent purchasing a house due to low monthly income or inability to qualify for a mortgage
- Purchase the desired house in a future date for a pre-determined price
- No need of paying property taxes, insurances etc. and maintenance charges
- First hand experience of living in the house before purchasing it
- If not interested in closing the deal, can walk out of the lease purchase agreement
Disadvantages of lease with option to buy are:
- Seller could lose the property during the period of lease
- Rent to own agreement may have clauses stating the tenant should pay maintenance expenses
- Breach of lease purchase agreement in case of a rapid appreciation in the real-estate market
- Financial incompatibility to purchase the house at the end of the lease period
Most of the disadvantages could be avoided with the help of a strong lease purchase agreement. A proper lease purchase agreement should contain the following:
More details on lease purchase agreements are available at http://homeguides.sfgate.com/lease-purchase-agreements-work-8023.html