Lease Options - Q & A
| Q: |
What is a lease option? |
| A: |
When a renter signs
a lease with an option to purchase the property for
a specific price within a certain time frame, that
is called a lease option. In most lease-option situations,
a portion of the rent is applied to a future down
payment.
Lease options are most popular among buyers who
don't have enough funds for a down payment and closing
costs.
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| Q: |
Where do I get information on lease
options? |
| A: |
For information on
lease options, "How Lease Options Benefit Realty
Buyers, Sellers, Agents and Investors" is available
for from Tribune Media Services, 435 N Michigan #1500,
Chicago IL 60611. 1-800-245-6536,or "Publication
House", Burlingram CA. 1-800-736-1736 |
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| Q: |
How do lease options work and what
are the benefits? |
| A: |
Most lease-option agreements
specify that a portion of the rent on the property
in question is applied toward the purchase if the
option is exercised. This is referred to as rent credit.
Institutional lenders accept rent credits as part
of the down payment if rental payments exceed the
market rent and if a valid lease-purchase agreement
is in effect, a copy of which must be attached to
the loan application.
For sellers, lease options give them several advantages,
especially in a slow market. These include a monthly
rent higher than market rent, top-market value for
the property and tax-free use of the option consideration
until the option expires or is exercised. Also,
the renter is more likely to treat the property
like an owner, tax-free use of option consideration
until the option expires or is exercised.
Lease-options should be read carefully for details
on transferring the option and other important concerns.
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