Lease to Buy
If you are looking to purchase a home, but do not have a great credit score and are unable to obtain a loan, then a lease option might be the answer.
A lease option allows buyers time to repair their credit while living in the home they want to buy.
When the real estate market is hot, lease options are hard to come by because sellers do not need them. When the market slows, sellers find it more different to sell their homes, and so lease to buy options become more attractive.
A lease to buy option allows a buyer to rent a property, with an option to buy it at a predefined price after a predefined period. For example, a buyer agrees to rent a home for $1,300 per month, with an option to buy the property for $250,000 after one year.
The lease to buy transaction process is similar to that of a regular property purchase, but there are some differences explained below.
Option Money – This is similar to an earnest money deposit. The buyer provides Option Money to show that they are serious. The money is held in a real estate brokerage account and is refundable until the buyer due diligence period has expired. Note this is not the same as a security deposit, a separate renters security deposit will have to be agreed and collected when the buyer decides to proceed with the lease.
Due Diligence – It is down to the buyer to perform all necessary due diligence before the deadline expires. This should include performing a home inspection, and may include a home valuation, plus anything else that the buyer deems necessary to confirm their wish to proceed with the lease to buy.
Notice of Intent Deadline – This is the date by which the tenant needs to inform the seller of their intent to proceed with the purchase. The date is usually 1 or 2 months before the date on which the lease is due to expire. If the tenant does not notify the seller by this date then the tenant / buyer loses their right to purchase the property. One thing to note is that there is no loan denial deadline, which means the tenant / buyer must have their loan in place before they confirm their desire to exercise the option to purchase the property. Once the tenant notifies the seller of their intent to purchase, they are obligated to proceed with the purchase / settlement.