Understanding Lease Options

By: Benjamin DeBell

A lease option is an agreement between a landlord and a renter. In this type of agreement, the renter agrees to rent a property with an option to buy the property for an agreed-upon price within a certain time frame. In most lease options, part of the rent is put towards the future down payment. This is known as rent credit and will generally be accepted by lenders as part of a down payment.

If you want to buy a home or are tired of renting but cannot pay for a down payment and closing costs right now, lease options are one way to start getting ready for a home purchase.

In many cases, lease options are seen as an in-between point between renting and owning. If you want to buy a home right now but have imperfect credit, lease options let you solidify a house price on a home and work to improve your credit. When you are ready to buy, you will be able to buy the property at the price you have agreed upon - even if market values have increased prices in the meantime. In many cases, it is advisable to buy a home sooner rather than later since real estate tends to increase in price. However, if you cannot afford to buy now, lease options at least allow you to lock in a price and start working towards your purchase.

Lease options are also good news for investors and landlords. Tenants who take on lease options are more likely to take very good care of the property, since they consider the property, in some ways, already theirs. Plus, lease options allow landlords to enjoy a higher rent and a fairly certain buyer for the property after a set time. Landlords also enjoy top-market value for the property and get to use the option consideration tax-free until the option expires or is used.

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