William,

You will most likely need to rent only if you are looking for another residence until your divorce is finalized (definitely speak with an atty on this matter) as any equity stake you might possibly gain would come into play when assets are determined.

Also, rarely does an 'option to buy' benefit the buyer in a flat or declining market.

You need to get the martial stuff final first and worry about the option later your still married. I would be happy to discuss options and results of forming an offer http://www.mikegarr.com. If the peoperty is refinanced or sold or foreclosed than the due dilagence of the buyer party is a breach of that option. One of many professional realtor s can set it up to cover all the bases call one today.

Good question. The obvious advantage is that you have the option, but not the obligation, to purchase the home if you decide that it is in your best interest to do so. Also, you have the ability to negotiate the price up front, thus locking in a purchase price should the value of the home go up dramatically while you are 'renting' it. Repairs are usually still the responsibility of the landlord, so that is another advantage. One disadvantage is that the majority of your monthly payment is rent.

To determine the contract price, hire a professional Realtor and/or a professional appraiser to come up with an accurate value of the home. 10% of the monthly payment should be allocated to the purchase price should you exercise your option to buy, but this is negotiable.

Please call me if you would like to discuss this.

Tom Carris, Realtor/Broker: 847-334-6538
RE/MAX Showcase
Long Grove/Mundelein
Lake Forest
Gurnee
Waukegan

Mike raises a very good point regarding the owner's behavior during the time you have a lease-option. Refinancing the property is one risk. Going into foreclosure is another. Selling the property is another. All these things can (and do) happen, though not commonly.

I'm not a lawyer, so this isn't legal advice. However, there are other ways to protect yourself, though. First, to prevent (or at least have a good chance at preventing) a sale or a refinancing, you want to "cloud the title." You can do this by filing a "Memorandum of Agreement" with your local city or county. It doesn't have to spell out the terms and conditions of the lease-option; it simply puts the world on notice that another party--you--has an interest in the property. Usually (the technicalities vary from jurisdiction to jurisdiction) the memorandum is signed by both the optionor (owner) and optionee (buyer), notarized, and recorded. That'll cloud the title.

Second, to know whether the owner is making his/her mortgage payments on time, you want a document, often called an "Authorization to Release Information." That will allow you to contact the owner's lender(s); the owner requests the lender treat you in the same manner as they treat the borrower regarding release of information.

Regarding the "best method" of determining a contract price, keep in mind that at the end of the lease-option you'll be getting financing in your own name. Therefore, from a price standpoint, you want to make sure that the property will appraise for the agreed-upon price. In today's market--depending on where you are geographically and what your market is doing, as well as the length of the option--the contract price probably will be pretty close to today's fair market value. The owner will want it as high as possible, but it doesn't do the owner any good if it's set so high that the property won't appraise, and you're not able to buy.

And that leads to the inclusion of some additional protections for you in the option. Again, I'm not a lawyer, so this isn't legal advice. But you want one or more provisions in the option in case (1) the property won't appraise, or (2) you aren't able to buy. Regarding the property not appraising, the basic choices are: (1) the owner agrees to lower the sales price to the amount of the appraisal, or (2) the owner agrees to extend the option for an additional period of time (often 1 year). If it's the "owner's fault"--not really his fault, but a problem with the house not appraising--often the owner bears the cost...reducing the price or extending the option.

On the other hand, if you aren't able to close because, say, you don't have a sufficient downpayment or your credit isn't good enough, that's "your fault." The protections, in that case (if the owner agrees in the option upfront) might be to extend the option for an additional period (say 1 year), in return for an additional payment from you. You'd be paying for an option extension.

There's no "typical premium" or amount from the rent credited toward the option and, thus, the purchase. And it's all negotiable. However, very generally, an amount equal to about 20% of your payment is considered reasonably generous. I've seen less, and I've seen more. Often, the more you're paying each month, proportionately greater the amount credited. For example, just to use round numbers, if fair market rent were $1,000, you might pay $1,100 a month with $200 a month credited to the purchase price. If you paid $1,200, then $300 or $350 would be credited. And so on. Sometimes, sellers will want more in rental per month, but credit a greater percentage to the purchase price.

Hope that answers your questions. Post others as they occur to you.

I couldn't answer the question better then either of the last two with the exception that you want to be careful when writing a lease option. What I mean by this is make sure that your down payment and monies applied towards down payment are separated and held in an escrow or reserve account by the owner. For example, say you want to buy a home for $200,000 and you give the seller $5k up front (to be applied towards the cost of the home if/when you buy) and you're getting $500 a month credit towards the cost of the home. At the end of a year you decide to buy and think you have $11,000 ($5,000 up front and 12 x $500 a month) towards the purchase price and you find that the seller refinanced their home and actually owes $200,000. They also don't have $11,000 plus expenses to bring to closing so where has your $11,000 gone (a new car, the sellers took a nice vacation on your dime)? What you'll want to do is really set it up so that you are paying two checks every month. One made out to the owners with a memo for rent. And a second check for $500 (just used in the example) to the escrow account they've set up and a memo stating that it's towards principal reduction for 123 main street. This will better protect you then simply writing one check a month. There are many pro's to this method which is even more true for people in transition who don't want to pick up additional assets at the moment, but don't want to be throwing away money on rent. Feel free to call to me at 847-557-1622 and ask for a free list of homes that are for sale with a lease option. If you have any further questions, I'd be happy to answer those, or I work with an attorney who specializes in Family Law and Real Estate and he said he'd be happy to answer any specifics for you. Good luck! Mike Stodola

Assuming "marital transition" means you are in the middle of a divorce and it is a ways away from being finalized, lease options are the way go according to the attorneys I have worked with (always check with yours first). The only con's are the cost the cost of the option (if you decide not to exersize the option), limited equtiy growth during the lease, and no interest to write off. On the pro side, many a seller will give great terms on lease options in Libertyville area. For more give me a call 847-542-4088 or go to my web site http://www.JPMackey.com

The pros are that you get to live in the home for a specified period of time before purchasing it, so you'll be aware of any defects with the home you might not have known until after you had closed. You'll also get to know the area (if you didn't already) and meet your neighbors. The cons are that you don't get to take advantage of some of the tax benefits from owning a home and in most circumstances there is a non-refundable deposit associated with the option price (this is the cost of the option). There is separate from your security deposit. Your option purchase price could be a pro or a con depending on what the market does in the time in between.

As for as the amount every month that would go towards paying down the purchase price, it's typically $200-300/mo. but this is certainly negotiable as well.

If you have any additional questions regarding rent to own options, please contact me at scott@illinoisrealestate.com.