Why Lease Option (Or Rent-To-Own) Program Is: Fill & Download for Free

If you are going to be in a city for only a few years, 4 or less, I suggest renting.If you plan to stay in a home for 5 plus years you are usually much better off buying. It becomes better as the years go bye and your equity increases from paying down the mortgage and the benefit of appreciation build.If you plan on living in a home for only a few years then moving up to a better one, you may still want to buy the home, and then keep it as a rental property thereafter. This would depend upon the price of the starter home of course, and the yield it would produce along with positive cash flow as a rental property.For more real estate investment info, check out my Quora blog: Success By Design Program

The so-called “rent to own” program is properly called a lease option. An option is the right, but not the obligation, to purchase a property at an agreed price at some time in the future. The optionee (the person hoping to buy) pays some form of option premium to enter into the arrangement, which obligates only the seller. At the end of the option period, the seller is obligated to sell the property at the agreed price and terms, regardless of the market price, if the optionee chooses to execute the option.Lease options appear attractive to people who don’t think they can qualify now, usually because they don’t have enough cash for a down payment. The owner of the property collects an amount greater than the market rent with that excess being set aside as part of the price the tenant-optionee hopes to pay for the property.Very few of these deals ever get consummated. The hopeful buyer has paid more than market rent for the property, but at the end of the option period, which might be a year or two years, they discover that they don’t have enough money for the down payment and closing costs.The seller decides at that time that they really want to sell the property, although they give first right of refusal to the tenants. When they can’t get their financing together in time, they wind up having to move—but the seller gets to keep the extra money they’ve been paying.It is a very, very good deal for the seller, who doesn’t have to pay tax on that extra money until the option expires without the would-be buyers executing it. For the buyers, not such a good deal.A far better approach is to understand just what is necessary to own a home. Specifically, how much cash is required, what kind of credit scores, and how much home are they qualified to buy. The minimum down payment for a conventional loan is 3%. For FHA, it’s 3.5%. For VA or USDA, it’s zero. The minimum credit score for a conventional loan is 620. For FHA with 3.5% down, it’s 580.The best advice I can offer to any aspiring home buyer is to meet with a local mortgage professional. Find out what your capabilities are today, and what you might have to do with respect to the cash needed and your credit scores. Map out a strategy. Most people discover that they are closer to becoming homeowners than they think.But don’t fall for any of these “rent-to-own” deals. They’re legal, but almost always a terrible deal for people hoping to buy their own home.I hope this is helpful. Good luck!

If one is smart, one doesn’t.A lease option (“rent to own”) works like this: the would-be purchaser agrees to buy the home they are renting in at some time in the future. The future price (“strike price” in option parlance) is determined at the present time. The rent is typically set above the regular rental market price, with a portion being allocated to the future purchase.Then, the tenant can apply for a loan, get approved, come up with whatever additional cash is needed for down payment and closing costs, and becomes a homeowner. If the tenant (“optionee”) decides not to buy or is unable to complete the purchase, they simply forfeit the additional money paid as option consideration.Here’s why this is a bad deal for the hopeful buyer:You agree to a price at some time in the future, hoping to be able to buy at that time.The likelihood of determining a price today for a fair market value at some time in the future is very slim. If I, as the property owner, know that values are rising, I am not going to agree to the property two years from today or more at today’s priceMost lease options don’t get exercised. This is often because the tenant is unable to get financing and/or the down payment at the time the option expires. When this happens, they simply forfeit the extra money they have paid to the landlordHere is a better alternative: you say your credit is “poor.” This is a subjective term, but it is important for you to know that you can buy a home with a credit score as low as 580 and a down payment as low as 3.5% using an FHA loan.If you have served in the U.S. military, you may be eligible for 100% financing through the VA Home Loan program. If you live in a “rural” area, you may be able to get USDA financing for 100% of the home’s value. Do a search to see if your area qualifies.If your scores are below those levels, there is still hope; just because your credit scores are low today does not mean they can’t be dramatically higher in a year or less. I you have accounts that are delinquent, bring them current and keep them taht way. If you have credit card balances higher than 30% of the credit limit, pay them down. If you have collection accounts, negotiate payment-in-full witfh the creditors to get them cleared up.Bad credit is often the result of less-than-optimal habits and a lack of knowledge about how credit works. Both of those factors are easily fixable.Don’t fall for the “lease option” trap (I almost said “scam,” but it’s really just taking advantage of people who don’t know their options). With some work and attention, you can become a homeowner sooner than you might imagine—on YOUR terms.Good luck!