I don’t know how many times I’ve heard this question in the last few months.
What about rent/lease with option?
Unfortunately with the way the economy has been the last few years most people can not afford or get pre-approved to buy a home. So they think the next best thing – rent with option. Wrong! I go over it so often that I decided to put if out there and then start directing people here to read about it.
What you think when you hear “Rent with Option”
Rent to own. You go to your local rental shop, sign a few paper and walk away with a big screen tv. Make regular monthly payments and in 12 months you own it.
It must work the same way with a house right. I’m renting it, so I sign the lease and state I want to buy it in a few years, because I have rent with option my monthly payments must go toward purchasing it instead of going to the owner like any regular rental payment does. Wrong!
What “Rent with Option” really means
Renting with option is a purchase agreement. Not only do you sign the lease agreement but you also sign a Lease with Option to purchase agreement and a Residential Sales Contract.
The lease is just like any other lease: you agree to maintain the property, pay the rent, live there with out disturbance, ect.
The Residential Sales Contract is just like any other: you agree on an amount, a settlement date, terms of tittle, ect.
In the Lease with option you agree to the purchase period i.e. how long until you actually buy the house. You agree to an option consideration or “Option Fee” i.e. an addition non-refundable dollar amount placed on top of your regular monthly payment (usually a few hundred). This will be held by the owner and credited to the buyer at time of purchase for down payment or closing costs. You agree to the Purchase price, regardless of the property value at time of purchase. So if the market drops (gee when has that happened) the value of the house will no longer be what you agreed to pay for it. Lastly you agree to obtain financing before the end of the lease with option term.
In the end there is considerable risk to renting with option and in the long run it would be smarter to take the extra three hundred a month you would have spent on option and put it in an interest baring account and save it up on your own. You can purchase a home that you haven’t warn and torn on for the last few years and is selling for current market value .
I hope this has helped. Feel free to add your thoughts and any additional feedback.