You see and hear it everywhere. If you want a home, you should find your Realtor®, get approved for a home loan, and start looking for you new home. What if you can’t get approved for a loan right now? Or maybe you don’t have the necessary funds for a down payment or closing costs? Need more time to build your credit and pay down bad debt?
Enter the Lease/Option.
You could make an offer called lease/option. In this sort of deal, two things happen: 1) you agree on the lease (aka rent) per month, utilities included or not, etc. and 2) come to an agreement on all terms related to the purchase, including price, contingencies (inspection, financing), proposed close date, etc.
These types of homes are rare to find, but they’re out there. Look for homes that have been on the market more than 90 days. It’s helpful if the seller owns the home free and clear, but not necessary. Much like normal, your agent will make an offer on your behalf with a proposed rent amount and purchase terms, giving you (the buyer/tenant) the right to exercise your “option” within an agreed upon time frame.
The time frame might be 3 months, 12 months or longer. In our case, we had a 12-month period to exercise our option to purchase, with an optional three-month extension. We recommend always including extensions ahead of time, so you don’t end up at the end with no previously agreed-upon ways to extend the agreement.
We hear some folks rent homes with the landlord telling them they could buy it at some point in the future. That’s great, but it doesn’t protect you at all. Sure, you’ll be able to rent the home, and sure, you’ll have good feels because you think you’ll be buying the home later. When the time comes where you’re ready to buy, what if the seller: a) doesn’t want to sell at that time or b) wants way more money than they used to?
You avoid that by agreeing to a lease/option at the beginning. If the owner wants to sell, they should have no problem coming to some sort of agreement on terms and price. It locks all parties into those terms and avoids the sudden price increase two years later when the seller finally agrees to sell. It also guards against possible appreciation. If you lock the price in now and don’t have to buy the home for 12 or more months, it’s possible the market will have increased in that time and you’d have had to buy the home for more money. Good for you!4