While everyone is familiar with how to rent a property, not very many people know that they have an option to buy the property they are renting as well—in other words, rent to own. Lease Purchase Options (LPO), are rental contracts that include the rental of the property, with the agreement that the renter will be given the option to purchase the property at the end of the lease.
Lease Options are worthwhile particularly to renters with bad credit who might be unable to buy a home otherwise, and also renters who aren’t quite sure they really want to buy a home. Lease options give you the right but not the obligation to purchase the home. The money that you pay for this right (option to buy) on the property is called the “Option Consideration,” or the “Option Fee.” Usually part of the rent is applied as the Option Consideration but it is non-refundable. You don’t get the money back if you don’t exercise the option so it’s not a good idea to go with this path if you’re not considering the purchase of the home. However, the benefit of this Option Fee is that, unlike rent, it goes toward the purchase price of the home.
Before you decide on a lease option, be sure that you put in serious thought into the future purchase of the home, and that you go over the terms you agree to in your lease option contract carefully.
The rest of this article will go over a brief overview of a lease signing in this video. To obtain a full example of a lease option contract or to direct your questions for housing in Bay Point, Concord, Pittsburg, Antioch, Oakley, Brentwood, San Pablo, Vallejo, or Fairfield cities in Northern California, please contact us.
The terms of this lease is detailed as a year to year contract. After the first year, the person can purchase the home, and will continue to have the option to purchase the home for three years after the first year.
Move-in costs, monthly rent, option fee, and the security deposit vary depending on the client and the agent’s agreement. It is very important to pay rent on time in order to improve your credit score. Two rules to keep in mind, NEVER pay late and ALWAYS make at least your minimum payment. Missing either of these rules will have a serious negative impact on your score and may hinder your ability to mortgage your home at the expiration of the Lease contract.
LATE CHARGES; RETURNED CHECKS
Rent is due on the first of each month and is considered late after the 5th calendar day. These costs may include, but are not limited to, processing, enforcement and accounting expenses, and late charges imposed on Landlord. If any installment of Rent or Option Consideration due from Tenant is not received by Landlord within 5 calendar days after the date due, or if a check is returned, Tenant shall pay to Landlord, respectively, an additional 10% of the monthly rent as a Late Charge and $25.00 as a NSF fee for the first returned check and $35.00 as a NSF fee for each additional returned check, either or both of which shall be deemed additional Rent.
When you take on an option to purchase a property, it's common to commit to take on maintenance of the property. If you’re committed enough to want a lease option, it’s likely that you will take good care of your property as you’re the one expecting to own it.
MAINTENANCE
As additional consideration for the Purchase Option, Tenant, at Tenant’s own expense, shall be responsible for all maintenance and repair of the Premises, the fixtures and improvements in the Premises, including without limitation the maintenance and repair of structural elements of the Premises, interior and exterior, structural and non-structural, ordinary and extraordinary, in and to the Premises and systems thereof.
Tenant shall properly use, operate and safeguard Premises, including if applicable, any landscaping, furniture, furnishings and appliances, and all mechanical, electrical, gas and plumbing fixtures, and keep them and the Premises clean, sanitary and well ventilated.
In this particular contract, Consideration purchase option for this contract is 3% of the year 2 purchase price and the Option Period is for four years. At any time after the first year the person can exercise their right to purchase the home but if for any reason they do not exercise their rent to own option they lose their 3% down. Before contract expiration, sometimes you can renew the option for an additional fee, but you would have to renegotiate a new contract with the property owner. Don’t assume that you can extend your option past the contract terms. The property owner is not required to renew the option, and if they do, they’re not required to keep the same pricing, fee, and duration terms.
The $200 of the monthly rent in this example, is the monthly Option Fee . Remember that this Option Fee is non-refundable. You don’t get the money back nor do you own the home if you don’t exercise your buy option on the house. The benefit of a house appraisal and your purchase price in a lease option is that you lock in your house value in the current market. As the home value appreciates, your purchase value of the home will be the same as when you first signed on the lease.
PURCHASE PRICE
The Lease provides Tenant with the option to extend the Lease for up to three (3) additional terms (each, a “Renewal Term”), each consisting of one (1) year.
If the lease renewal option is exercised pursuant to section 5 of the Lease, then the minimum purchase price (“Minimum Purchase Price”) for the Premises during the first Renewal Term shall be $203,500; the Minimum Purchase Price during the second Renewal Term shall be $218,762.50; and the Minimum Purchase Price during the third and final Renewal Term shall be $235,169.50. Optionor may in its sole discretion obtain a neutral third party appraisal of the Premises upon Optionee’s exercise of this Purchase Option to determine the appraised value of the Premises (“Appraisal Price”). The Purchase Price shall be calculated by adding fifty percent (50%) of the difference between the Appraisal Price and the Minimum Purchase Price to the Minimum Purchase Price (“Purchase Price”). (e.g., if the Appraisal Price is $205,000.00 and the Minimum Purchase Price is $185,000.00, then the Purchase Price would be $195,000.00). In no event shall the Purchase Price ever be less than the Minimum Purchase Price.
$200 of the monthly rent goes down to the down payment of the purchase of the home
This has been a quick overview of a contract, but there are many things to consider and to read over in your lease. Everything is negotiable and you’ll be able to work out the terms with your representative agent. You are in a position to buy your own house even with bad credit. This is the perfect opportunity to buy your own home with lease options. It's simple and it's a way you can try before you buy. Get ready to finally own your home!
