MCP Help Blog

Lease options, otherwise called rent-to-own transactions, can help you buy a home you want when you can’t make the purchase right away because your credit isn’t up to snuff, you need more time on your job to get your mortgage, or you’re still saving your down payment. They can also empty your wallet and make you homeless! So enter these transactions carefully.

Why would a seller consent to a lease option? Well, right now there are several reasons. In a slow market, many find that offering a lease option makes their home more competitive. But in addition, there are some sellers who are just evil and have discovered a way to take advantage of people. Some of these creeps “sell” their homes several times a year!

It is critical that your lease option specify what every cent you give your landlord is for. Typically, there is an option fee. You pay this for the privilige of being allowed to purchase the home at an agreed-on price within a specified time. Sometimes, this fee is applied towards the down payment if you exercise your option. But only if that is specified in your agreement. This is important because a lender may not give you credit for what you thought was a down payment when you try to complete your purchase.

Better never than late: Some landlords (the ones who like to sell their homes over and over) have very tough restrictions–and violating even one of them even once can get you evicted and your money lost! Even one late rent payment can cost you everything. So if you aren’t absolutely sure that you can make every payment on time or meet whatever condition the landlord / seller imposes (a bad guy might kick you out for having a goldfish if there was a “no pets” clause in the agreement), then just don’t go there.

Dirty Tricks :

This is what bad guys love to do to ignorant buyers:

1. Demand a large up-front option payment (non-refundable for any reason), and a large monthly premium (ditto).
2. Include the right to cancel the deal if the payment is received in as little as ten days late!
3. Demand payments in person, then make themselves hard to find.
4. Evict!
5. Resell!

Smart Buyers:

1. Have a real estate lawyer draw up or at least look your documents over before you sign them. Worth a few hundred dollars every time. There are things you must do at the start of a lease-option if the lender is to recognize your equity an the time of purchase.
2. Have a loan officer look over your finances, tell you what you need to do to qualify for financing, and make sure you’ll be capable of exercising the option by the time it expires.
3. Never turn down a free or low cost option.
4. Take care fo the property. If you have a “triple-net” lease, make sure the taxes, home owner’s dues, insurance, and other expenses are paid–because typically those will be your responsibility. One missed payment and you’re out.
5. Take care of the property. Neglect it and you investment value drops or you may be evicted and you lose your money.
6. Never, never, never let an option expire without getting the property appraised. What you was kind of pricy in the beginning might be a real bargain near the end of the option.
7. Make sure the documents get recorded as public records. You don’t want your seller loading up your property with loans you don’t know about.

When you’re finally ready to make that home truly yours, find a loan expert who has the experience to get you the best loan, present your application properly to underwriters, and close the deal with minimal hassle.