Leasing with the Option to Buy

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Real Estate

Leasing with the Option to Buy

Leasing with an option to buy is a great option for some of my clients who don't have the money for a downpayment or aren't sure they are going to stay in the home for 3 to 5 years.  The renter, who is referred to as the tenant, signs an agreement with the landlord stating that the tenant can buy the property at the end of a prearranged time period. The owner is obligated to sell the home at the agreed upon price, but the tenant is not obligated to buy. And that's the beauty of it!  My clients can rent the house, and then walk away after, one, two or three years renting, without having to buy the home.  If they choose to buy, they know exactly how much they will need to finance.

Usually, the purchase price is set out in the original lease-option agreement – in other words, the purchase price is set according to today’s market, not in the future when the price of the home may be significantly higher.  That can be a big advantage if housing prices are rising rapidly.

The lease agreement usually has a clause that terminates the option to buy if the tenant in any way violates the lease or gets evicted before closing the agreement to purchase.

An option to buy doesn’t give the tenant legal title to the real estate, that only happens if the tenant chooses to buy the home and agreement of sale goes through.  

A unique feature of the lease-option is the rent credit. The tenant usually pays above-market rent for the property, but a (non-refundable) portion is credited toward the purchase price if the buyer decides to exercise the purchase option.