At least one party usually feels like they got the short end of the stick at the end of the option period. This market is very unpredictable.
1) The parties agree to a monthly lease fee and whether or not any of that amount will be credited at closing toward the downpayment (not all lenders will allow rental credit)
2) The parties agree on a sales price
3) The parties agree on the length of the lease term
4) The parties agree on an amount of the option payment
5) All terms are worked out ahead of time...this is it in a nutshell and is not a complete guide
At the agreed upon time the buyer will either exercise his/her lease option or decide not to. If the market turns around and the value of the property is worth as much or more than the agreed upon price then the buyer is happy. I have seen a seller try to prevent the closing of a property because the value increased drastically within the option period. The seller had no grounds to back out and the buyer obtained an attorney to hold the seller's feet to the fire so to speak.
If the value of the property declines within the term of the lease option then the buyer can walk away and the seller can keep the option payment and is not required to extend the option.
I hope this helps!
Unless you've done this before you should consider paying somebody that has experience to guide you through it. I'm sorry but that is honestly probably the quickest and cheapest way to do it right. You can try to do the research yourself based on answers to your questions on internet forums and slogging through different links on google but unless you plan on doing alot of these things you need to ask yourself this: Is the amount of time it takes me to educate myself to the level where I feel 100% confident in that I'm doing everything right worth more or less than the amount of what I'd pay to an experienced agent/escrow officer/attorney to help guide me through the process and make sure I'm using all the right documentation to minimize my liability and prevent me from negotiationg a deal that isn't in my best interest?
check out the link below, Wendy Patton is the biggest expert I've seen on lease options (I provided a link to her site below)
you can also try contacting Phllyis Rockower at 310-792-6404
M. Ben Nicolas
IET Real Estate
310 874-1278 cell
310 626-9690 fax
CA Lic# 01458128
I have not been able to convince any lessors to consider lease option thusfar. It sounds attractive of course,but complicated to do practically. I'm sorry to be the bearer of bad news. If you haven't already considered it FHA only requires a 3.5% downpayment perhaps you would be able to save the down for something reasonable.
Best of Luck to you
to draft the paperwork, and set up an escrow account.
Is it an OPTION to Buy, or is it a CONTRACT to Buy?
What amount of the Rent, if any, is applying toward a Down Payment?
Many Renter/Buyers assume that all of the rent is applying toward a down payment,
when in fact, none of it may apply.
It all depends on what is written in the Option Agreement, or Contract to Purchase.
If some of the money will apply to a Down Payment,
is it being held in escrow by a third party,
to keep the Seller from just running off with it?
Is there an existing Mortgage or Mortgages or Judgment Lien on the Property?
Have you done a Title Search or Abstract?
What is to prevent the Seller from taking out a Loan after the Fact and damaging the Title?
What happens if the Seller loses a lawsuit and a judgment lien is placed on the house?
How do you know that the Existing Mortgage or Mortgages are being paid?
If the house is Foreclosed on, you the Renter will have no rights,
and may be put out of the house (with a few excepted states, including California)
Is the Seller going to Finance this,
or will you be getting New Third Party Financing (Bank or Credit Union Loan)?
What about the Existing Mortgage - is there a Due on Sale Clause that might be triggered
by your agreement?
If the Present Mortgage Holder considers the Option to be a Transfer of Ownership,
it may trigger the Due on Sale Clause in the mortgage (the entire Loan Balance is accelerated and due immediately).
Likewise, if the Property Appraiser deems it to be a change of Ownership,
you may face Property Transfer Taxes or Intangible Taxes.
Who will insure the house? Do you need Tenant Insurance to cover your private property?
What if the house is severely damaged by a storm or fire - is there a provision for that?
Again, see a Real Estate Attorney.
There are serious consequences involved.
He can deduct the down payment from the rent or not, this is all negotiable.
This is a great idea these days :)
There are several takes on the rent with option to buy process for buying real estate. This is a very good method when the scenario is right, and the parties are educated to the process, and its done fairly.
The down payment going into an escrow is an excellent option. There's always a chance that the rent with option deal can go south, and fall apart. When this happens, there may be contractually agreed upon remedies that will directly involve the disbursement of that down payment money. It does not necessarily all go to the seller. So, by having this money in an escrow account, according to the contract, it will always be readily available when need be.
As opposed to the owner having it, and possibly NOT having it, when it is needed, according to the contract.
Hope this makes sense!
All the best,
Kieran Jackson, CA DRE # 01903647
Keller Williams Hollywood Hills
Short Sale Specialist (SFR)
I hope you donâ€™t find a rent to own.
Every single person (tenant/buyer) I have spoken to that has done one of these in the last couple of years have lost money, one guy lost $50,000 another lady $25,000 and the list goes on and on. Do lots of research, the link below goes deep on the buyer's side. I hope it keeps you from getting hurt.