Need Help Buying a Home in the Bay Area? Learn About Lease Options
If you are considering buying a home in the Bay Area but are not a 100% sure you can make a long term commitment, you might want to consider a residential lease option. A lease-option, or a rent-to-own agreement, offers more flexibility while still allowing you to hold onto the option of purchasing the home in the future. Many Bay Area home buyers are using lease agreements to scope out a neighborhood before committing to the full home purchase.
How Lease-Options Work
A lease-option seems complex at the outset, but they are fairly simple structures once you understand how they work. With a lease-option, you are moving into the house as a renter, with the understanding that, at a date that is agreed upon, you will be given an option to buy the house. To have this option, the renter will pay an upfront "option" fee, as well as a higher-than-average rent. The extra rent payment and the option fee goes into a fund that will be used at a later date as a down payment for the home purchase. However, you will most likely have to forfeit this fund in the event that you chose not to purchase the home. Keep in mind that each rent-to-own agreement will vary depending on how the terms of the contract are negotiated.
When Lease-Options Make Sense for Buyers
If you are considering buying a home in the Bay Area, yet need time to explore the neighborhoods, schools, etc., then a lease-option may make sense. It basically gives you the ability to "test drive" the neighborhood, and the home, with the intention of eventually buying it, but the freedom to opt-out if it is not a good fit for you.
A rent-to-own agreement is a good option to consider if you are interested in a property but need some extra time to save up for your down payment. With a lease-option, you don't have to pay cash on the spot for a home but can gradually save up by paying a little more for rent every month. As a result when you are ready to make the purchase, your money will be ready and available for your down payment.
Finally, the lease-option works well for Bay Area home buyers who may have poor credit. If a buyer's credit is healthy enough for a rental agreement, but not for buying a home in the Bay Area with favorable mortgage terms, the lease-option gives you some time to enjoy the home while working to restore your credit, thus helping you earn a better interest rate when you take the purchase option.
How Sellers Benefit from Lease-Options
During difficult times in the real estate market, many home sellers will find that there are not very many Bay Area home buyers who are willing and able to purchase their homes. Those who need to sell quickly and cannot wait long for a qualified buyer can benefit from the lease-option arrangement. If you find an interested lessee, you can have someone in the home, covering your mortgage payments, while being able to move on to your new home. Over time, you will be able to sell a home that you would otherwise have been unable to sell. Because the renter is willing to pay the option fee and the higher premium, you have more of a guarantee that the renter will eventually turn into a buyer.
For Bay Area home buyers and sellers, the lease-option is a flexible way to make homeownership a possibility, even for homebuyers who may not have the funds to put a sizeable down payment on the property. This can be a beneficial option for both buyers and sellers in a time when the real estate market may not be moving as quickly as it has in the past.