VACAVILLE, CA, Jan 28, 2015—For hopeful homeowners who don't have the capital for a down payment, renting to own is a lesser-used but viable option for obtaining a home. However, since this route is often less traveled, there is a lot of gray area surrounding the affordable financing plan.
“A lease option is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property later on,” says Stephen Spencer, Bev Dorsett & Sue and Steve Kappel, Broker/Owners of Coldwell Banker - Kappel Gateway. “In addition to the avoidance of a down payment, a lease option may be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan,” explains Sue and Steve Kappel.
Under this arrangement, the landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place. “The option only binds the seller,” says Sue and Steve Kappel. “The tenant has a choice to make a purchase or not.”
A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect.
Before you opt to do a lease option, find out as much as possible about how they work. Have an attorney review any paperwork before you and the tenant sign on the dotted line.
For more real estate information, please contact Coldwell Banker - Kappel Gateway at email@example.com, 707-446-9800, or Coldwell Banker - Kappel Gateway.