How
do lease options work and what are the benefits?
A lease option is an arrangement with you and a seller to exercise the option
to buy a house after you have rented it for a specific period. A portion of
your rent would applied toward the purchase if the option is exercised. This
is referred to as rent credit, which most institutional lenders will accept
as part of the down payment if rental payments exceed the market rent and if
a valid lease-purchase agreement is in effect, a copy of which must be attached
to the loan application.
If you are a seller, lease options can give you several advantages, especially
in a slow market. These include a monthly rent higher than market rent, top-market
value for the property and tax-free use of the option consideration until the
option expires or is exercised. Also, the renter is more likely to treat the
property like an owner, tax-free use of option consideration until the option
expires or is exercised.
Read any lease-option arrangement carefully for details on transferring the
option and other important concerns.
