The Role of the Lease Option in Real Estate

Have reasons like bad credit, self employment, or a low income kept you for owning your own property? Do you feel that a mortgage for a lending institution is nowhere in sight? Well, there is good news! There is an alternative that not only grants you ownership in a property, but also allows you to build your credit score. There is a "lease with an option to buy."

Just as the name implies, a lease option is like signing off on two contracts: a lease contract, and an option to buy. A lease is simply a rental agreement on a property that outlines all the terms and conditions like rental rate and the term of the rent. With a lease option, the "option" part allows you to purchase the property sometime in the future. A typical lease option contract includes the terms of the purchase price, the expiration date of the purchase option, and the percentage of rent that will go towards the purchase price each month.

Lease options make for one of the best way to assume ownership of a home. It allows for an easier way to qualify than a traditional mortgage loan, and works along the same means as renting. The only requirements of a lease option are that your credit and job requirements fall under the category of "normal." A mortgage lender will more heavily scrutinize your credit as well as your income, and a property owner will tend to be a lot more lenient. Another strong advantage of a lease option is that it may have only a small initial investment. One month's rent and a security deposit may be the only requirements for the initial investment. This is much lower than 20% of the purchase price.

Another great advantage of lease options is that they can allow you room to improve your credit. In order to receive the best terms, and rates with a mortgage loan your credit must be in excellent shape. With a lease option you have wiggle room to scale back your overall spending and to pay down your debt. By being a wise negotiator and exercising your option when the lease ends you could watch the market value of your home soar, and exceed its option price. With this appreciation on the value, you may be allowed to borrow the money needed to close the sale of the property. In addition to market value any improvements you made on your property could greater build the equity in your home.

Last but not least, lease options literally allow you to save for your down payment. As much as 50% of your total rent could be applied towards your down payment. Better than that, once you have agreed to purchase the home, it should be much easier to cut spending in many areas and apply it to the house pool. If you are looking for an easy way to purchase and own your own real estate, a lease option may be the right option for you.