For the renter that has bad credit, or the family with only one income, this option is for you. These days, it is easy to get in to credit card debt or have to file for medical bankruptcy, and people with bad credit are more and more. Most people with bad credit would really like to bring their credit up and be able to buy a house someday. Likewise, the family with one income may want to purchase their own home, but need some time to get finances in order.
The standard lease option is 3-5 years
During a lease option, the renter is paying a slightly higher rent because the landlord is holding the asset for the renter. The landlord agrees not to sell the house during the *lease option period, so the renter has the option to take over the property, without competition.
During this time, it is highly recommended that the renter start to work on finances and bringing up their credit. Paying rent on time can help raise credit scores, and the landlord can help by reporting the payments through RentBureau.
This is also a good time for the one-income family to figure out a budget and work toward purchasing their own home. Many times, it just takes a few years of setting aside money for a down payment, this is where the landlord and lease option to buy can help.
You will pay a higher rent; it can go toward your lease option money
Each lease option is different for every renter. Therefore, the landlord can set up the contract to cater to the renter’s exact needs. If the renter wants to set aside money each month for a savings account, that can be arranged. If the renter would like for the price to be lower at the end of the 3-5 year term, they can pay additional rent each month and have the extra come off the purchase price.
Many times, if the renter needs financial advice, the landlord will help out for free, because the landlord really does want the renter to succeed. As long as the renter is up front with the landlord, options can be made for each specific renter to help out.
You will need option money up front
In a standard lease option, the renter will typically give the landlord 3-5% up front as option money. It is nonrefundable. It forces the renter to put some skin in the game, and really agree to purchasing a home for themselves. The option money will come off the purchase price, but it is not a down payment. The renter will still need to work with a bank to get financing when the option period (3-5 years) nears.
Purchase prices are set before the lease option term
Typically, the landlord and renter agree upon a purchase price at the beginning of the lease option. Since the term is 3-5 years, depending on the needs of the renter, there is a slightly different purchase price at the end of the 3, 4 and 5 years. It gives incentive for the renter to purchase the property sooner, rather than later. The price increases slightly each year, due to the standard inflation rate of around 3.22%.
Example: 3 years: $175,000; 4 years $180,635; 5 years $186,451
Purchase prices are always negotiable, as well as monthly rent. Many times, renters do not negotiate because they don’t know they can. It actually helps the landlord when a renter negotiates because the landlord can find out what exactly the renter needs in order to succeed.
*Lease option: The contract that is signed between the renter and landlord. It states that the renter will lease the property with the option to buy.
Creating opportunities for financial freedom 