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What is a lease option?
So what do you do if you
have found the home of your dreams but do not have the financial sum required
for a down payment and closing costs?
You could just wait until you have the necessary funds to pay for these
initial costs, but considering how time consuming and difficult it is to find a
home that you love, this is an option that you don’t want to consider. However, this is the only option you have as
you just don’t have the money to buy a home, right? Wrong. There is one option
open to you and that is a lease option.
Not only advantageous for
prospective homebuyers, a lease option is a popular route for home sellers to
go down when trying to sell their home, particularly in times when the housing
market is slow. For those individuals
wondering, “what is a lease option,” here is the answer.
A lease option is an
agreement between a home seller and a prospective homebuyer that is signed on
the lease in which the prospective homebuyer has the option to purchase the
home for a specific price within a certain time period. This option benefits the prospective
homebuyer as they are able to work to securing a home for sale while living in
their potential home.
During the lease, the
potential homebuyer pays monthly rent which incorporates rent credit. Rent credit only accumulates if the
potential homebuyer makes rental payments that exceed the market level of
rent. With rent credit, a portion of
the rent goes to the purchase of the home if the lease option is
exercised. In order to make this option
valid, a copy of the lease purchase agreement must be attached to the
homebuyer’s loan application if there is one in effect.
For individuals that are
selling their home, a lease option presents a number of advantages. Financially, lease options ensure that home
sellers will receive monthly rent payments that are above market levels. Also, home sellers will receive tax-free use
of this lease option until either the loan option is exercised or expires. Therefore, a lease option is a win-win
solution for homebuyers and home sellers.
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