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If you want to buy a home, but don’t have enough money for the down payment or if you are having credit problems, then there is another option.

It’s called the lease option or lease-purchase plan to buy a home.

It’s also a way for those homeowners who want to sell their house, but can’t get their price and those who can’t qualify for a mortgage to come together and agree on a mutually beneficial arrangement.

In most cases, the owner agrees to sell his property for a specific price within a certain time frame and the tenant agrees to rent with an option to buy.

These agreements often require the tenant to pay an agreed upon amount each month toward his future down payment or closing costs, or both.

Not all lease options are created equal.

Some are more similar to rental agreements and offer very little opportunity for the renter to build any equity in the home.

The best lease options give the renter/buyer an opportunity to treat the home as if it was their own, build some equity, and still have time to shop around for financing before taking on the contractual obligations of a mortgage.

This will alllow for a portion of the rent that would be applied toward the purchase if the option is exercised. This is referred to as rent credit.

How it works

You enter into a contract with the seller for a specified time (usually about one to three years), during which you pay rent, and a portion of your monthly payment goes towards the purchase price of the home at an agreed-upon price.

This option means that you can decide whether or not to buy the home at the end, but if you do want to buy it, you’ll have first rights, as long as your contract isn’t up.

The seller keeps all of your monthly payments, minus any rent credits, until you decide to exercise your option. If you don’t buy, he gets to keep all of those payments. You don’t get any money back or credit toward rent.

The option fee is usually nonrefundable and acts as the buyer’s deposit. It may be credited toward closing costs if and when the tenant exercises his or her option to buy.

For example, if you paid $2,000 for an option fee and $5,000 toward closing costs when you bought the house, you’d have $7,000 in equity right off the bat.

In addition to paying rent each month, the tenant pays an extra amount to go toward a down payment on the home.

The more of these “option payments” that get applied to the down payment, the less money will be required from the tenant at closing.

If you exercise your option and purchase your home, your landlord/seller credits your monthly option payments against your down payment.

The lease portion of the agreement outlines the rights and responsibilities of both parties during the lease term, including how repairs will be handled, who pays for maintenance, whether pets are allowed and whether the property can be subleased.

The primary benefit of a lease purchase agreement is that it can allow people with bad credit or no cash to live in a property they might otherwise be unable to buy.

In addition, many sellers of properties under lease purchase agreements are willing to make improvements or repairs to the home before selling it to the tenant.

This gives both parties an incentive to close on the sale: The owners get their money, and the tenants get their repairs.

This type of agreement can be ideal for people who might not otherwise qualify for a mortgage, or who want more time to prepare for homeownership.

Because your monthly payments will generally be higher with a lease-option than with a straight rental, you should carefully consider whether you can realistically afford this type of agreement before signing on the dotted line.

The time frame for when your option expires; if you are not able to exercise your option during this time, you may lose any money that you have paid toward the purchase price.

If you’re thinking about entering into a lease option, make sure you understand what your rights and obligations will be during that agreement period.

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