When Chris and Sarah
Kane of Visalia, Calif. decided to purchase
their first house, their hopes of becoming
first-time homebuyers were nearly dashed by
ever-soaring prices and a down payment out of
their reach. “We found a home we really
liked for $221,000 and figured we would just
have to rent it,” said Chris Kane. “But as we
thought more about it, we knew we didn’t want to
spend over $2000 a month on a home with nothing
to show for it.”
Instead, they took a different tack with the
seller. “We decided to ask if the owner
would consider a lease-option where we could
apply our rent to the purchase of the house. An
agreement was made, and 12 months later we had
over $20,000 equity in the home — and our
down-payment was covered,” he said.
Renting to own, otherwise known as a
lease-option (lease / purchase), provides a way
for those not in a position to make an immediate
purchase to settle on something that is right
for them — and at the right time. For
example, people who have made a recent job
transition or who need time to strengthen their
credit or come up with a down-payment may
benefit substantially from this type of
home-purchase plan.
Although often tailored to accommodate both
buyer and seller, all lease-options work about
the same: the renter agrees to lease the house
for a pre-determined amount of time (typically
one to three years); an up-front consideration
fee with or without an elevated monthly rent may
be required (the portion over market goes into a
“fund” that is later utilized as a down
payment); they provide the opportunity to lock
in a price when the deal is made, with the
option to purchase at that price, either when or
before the lease is up.
Timing is Key...
As with any other home-financing plan, timing
is everything.
Market conditions are a critical factor in
finding a lease-option. At this point in
time, being a buyer's market in Metro Atlanta,
there are many resales on the market that would
be happy to be offered a lease/purchase, versus
having the house sit vacant or being held up
with their future plans.
While the perks of lease-options are obvious,
so is the danger of forfeiting the money
invested if the option to purchase is not
exercised.
“Lease-options typically favor the buyer, but
they can be complicated and dangerous to those
unfamiliar with them,” Munguia warned. “For this
reason, they should seek counsel from a broker,
and also have a real estate attorney inspect the
contract to ensure their financial protection
and security.”
With the aid of professionals, an eye for
opportunity, and a good sense of market timing,
lease-options can be a smart solution to
throwing away money. First-time home buyers who
play their cards right can eliminate obstacles
conventional loans may present, and go on to
realize their dream of homeownership. For Chris
and Sarah Kane, it was the ace they had been
waiting for.
Copyright by
Move, Inc.
