If you're anything like Jeff, you are looking for a creative and affordable way to get into a property. In Jeff's case his credit wasn't in the best spot, but he knew he could afford a house payment easily! The only thing holding him back was the interest rate he was quoted on his loan and he knew there had to be a better way to get into a home. Jeff discovered the lease purchase option which allowed him to put some money down towards the purchase of the home and spend the next 3 years building his credit and securing a satisfactory loan!
How a lease purchase option works: A breakdown of the process, including the option fee, purchase price, and monthly rent payments.
Under a lease purchase agreement, the tenant (and eventual end buyer) pays a down payment, also known as an option fee, to the landlord. This fee gives the tenant the right to purchase the property at a predetermined price during a specific time frame. The tenant then pays monthly rent payments, just like they would under a traditional lease agreement. That down payment, most of the time, in its entirety is applied towards the purchase price of the home. This gives you an instant equity position in the home and can help you tremendously in the long run.
Benefits of a lease purchase option: The advantages of using a lease purchase option.
One of the benefits of a lease purchase option is that it gives the tenant time to improve their credit score or save up for a down payment. This can make it easier to qualify for a mortgage and ultimately purchase the property. It also allows the tenant to test out the property and see if it is a good fit for them before committing to a full purchase. Not to mention it may actually save the tenant more money in the short term allowing them to get a better interest rate on their loan due to credit improvements or the market adjusting!
Things to consider: A discussion of the potential risks and challenges of a lease purchase option.
One thing that is important for both the landlord and the tenant to carefully consider are the terms of the agreement. The option fee and monthly rent payments should be fair and reasonable, and the purchase price should be set at a level that is fair to both parties, and in line with what the market rate is for homes. It is common for the purchase price to be slightly higher than market rate, because the landlord is allowing the tenant to purchase the home anytime over the next few years. It is also important for the tenant to understand their rights and responsibilities under the agreement, as well as any potential risks or challenges they may face. In this type of purchase agreement, the landlord may expect the tenant to care for the property as if it were their own. That means replacing bad water heaters, broken A/C units, leaky toilets, etc. If you need help structuring these deals, reach out to the team to get started!
Conclusion: A summary of the key points and a discussion of the potential benefits and drawbacks of a lease purchase option.
Overall, a lease purchase option can be a good option for people who are not ready to buy a property outright, but want the opportunity to do so in the future. It can provide a way for tenants to improve their credit, save for a down payment, and test out a property before making a full commitment. However, it is important to carefully consider the terms of the agreement and understand the rights and responsibilities of both parties. If you are interested in a lease purchase option or any other creative finance be sure to reach out to Chad Johnerson at (406)599-9939!