Lease Option

What Is A Lease Option?

Lease options were popular financing instruments in the late 1970s and early 1980s and were primarily used as a way to circumvent alienation clauses in mortgages. However today it has become one of the ways in which a person with low credit or credit problems can buy a home.

A lease option is a lease contract and a purchase contract combined together. A lease gives the tenant or the renter the exclusive use of the property for a specific period of time. An option gives the right not the obligation to buy a specific property at a specific price on or before a specific date. It is a grant of the right to purchase property, at set price and terms, from the owner of the property. The person who receives the option can purchase the property during a set period of time agreed to by both parties when they enter the option but is not bound to purchase.

The basic philosophy behind lease option is that you rent the home and have an option to buy it at a set price by a set date. Generally there is a non-refundable deposit which could be $1,000 or $10,000. This is also called option fee. The option fee is applied towards the purchase price when you close the deal. If you do not exercise the purchase option, you lose the deposit. Generally a part of the rent is applied towards the purchase price to enable you to more easily come up with a sufficient down payment to get reasonable financing terms.

Lease options are becoming increasing popular with those that have bad credit problems and can not normally qualify for a home mortgage loan. To qualify for a home mortgage loan, you have to fix your credit situation first. Lease options provide that solution