From time to time, we get the questions regarding Lease Options as they pertain to buying Real Estate. There are several key factors that you need to consider before embarking on a Lease Option - Here are a few things to consider:
- What is the Length of the Lease Option to Purchase you are signing?
- How much extra, per month, is being applied to your down payment?
- Is the purchase amount re-negotiable to be in alignment to current market values at the time the Lease Option is over and you are buying the "lease optioned" home?
- What about inspections, asking for repairs and title issues?
You might not have to go about buying a home this way - You need to speak to a Real Estate Professional so your "why" can be explored and your questions answered. There are over 200 Lenders that loan money on Residential Real Estate - Call us to see if any one of them is a good fit for your specific needs.
What is the Length of the Lease Option to Purchase you are signing?
This is very important depending on the market conditions. If the market is in a decline - you might be placing yourself in harms way. Today a particular home's market value might be $300,000 - When a lease option comes to an end in 12 months, that market value on that same home might be $260,000.
How much extra, per month, is being applied to your down payment?
Usual down payment amounts on an FHA Mortgage are 3.5%. Veteran Loans are less - While Conventional lending can be 10-20% down depending on the bank or lender. What happens when time comes for the purchase to take place on the Lease Option and what if the seller is not willing to adjust the home, condo's or town-homes price to the Current Market Value? You might be forfeiting your down payment that you payed into each month if you cancel the deal due a "hard line" seller.
Is the purchase amount re-negotiable?
This comes inline with the second point. The bank that you are getting your loan through will only loan what they deem to be the value of the property. This is done via an appraiser and many different levels of review, underwriting etc.. If you make it to the end of the "lease option" and the seller is unwilling to adjust the "lease optioned" home's value, in a declining market to be inline with current market values, - you might lose your down payment and the fee you paid to have an appraisal conducted on your Banks (lender's) behalf.
What about Inspections, asking for repairs and title issues?
This answers the question of why you want your own Real Estate representative in your corner. First, you don't pay an agent to represent you when buying a home, condo or town-home. Your Realtor's fee comes from the proceeds charged to the seller. Our experience in real estate has shown there are many issues that need to be fixed, negotiated and controlled by a Real Estate Teams sheer knowledge and will. You will want to have an home inspection performed. You will want to submit to the seller a request for repairs - you will want to make sure Title is Clear and the conveyance of the property to you will be free and unencumbered. This is very difficult to do when you are on your own and when you are not represented.
Make sure you are well represented. Make sure you are not going it alone. Make sure you are seeking wise counsel before approaching anything that is related to Real Estate. Don't forget, Real Estate proves to be one of the largest investments in a person's life - you should treat it more seriously than buying a pair of shoes, as Paris Says!