How do lease options work and what are the benefits?

Lease options are a great option for home sellers, especially if a home seller is faced with a slow housing market. For those who are wondering, “How do lease options work and what are the benefits,” it is really quiet simple. A unique arrangement, lease options come about when a home seller and a potential homebuyer agree to the principle that the home can be sold to the homebuyer after they have rented it for a specific time period.

The lease option is a particularly good option for those individuals who want to purchase a home but do not have the sum necessary to make a down payment. Considering how expensive purchasing a home is, lease options are a valuable way to sell your home that is mutually beneficial to both you and the homebuyer. How they work is that the homebuyer pays rent until they exercise the lease option. A portion of the rent goes to the purchase of the home if the option is exercised. Otherwise known as rent credit, this rental arrangement is generally accepted by most institutional lenders as an acceptable form of down payment for a home. However, in order for this rent money to be considered rent credit, the rental payments must exceed the market level of rent and a copy of a valid lease-purchase agreement must be attached to the loan application if one is in effect.

For those who are selling their home, lease options have a number of excellent advantages. From a financial perspective, lease options means that the home seller will be receiving a monthly rent that is above market levels. Additionally, the home seller would be receiving top-market value for their property and would also enjoy tax-free use of the lease option consideration to the point where the lease option expires or is exercised. Also, a home owner would be able to enjoy peace of mind about how their property is being maintained as the renter has an incentive to treat the property like an owner as they are hoping to eventually own it after exercising their loan option.

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