Renting to own a home in the OC

For many hopeful homeowners, buying a home in Orange County, California may seem out of reach. There is, however, an option to a traditional purchase that may be worth considering. Some Orange County real estate listings offer a “lease option”, or “rent-to-buy” agreement that is essentially a hybrid of a traditional sale and a rental. While this is a viable option, be sure you understand what a lease option is and what factors to consider before entering into one.

What Is a Lease Option/Rent-to-Buy?

These can be structured in slightly different ways; however, the concept is based on the premise that the purchaser rents the home for a period of time after which he or she purchases the home. Typically, the purchaser/renter is required to pay a fee for the “option” to buy the home at the end of the lease period. In addition, a portion of the monthly rent is often earmarked as a down payment on the purchase of the home. For example, imagine that a home is listed for $150,000. The seller may agree to a lease option agreement wherein the purchaser pays a $3,000 “option” fee that gives the purchaser the right to purchase the Orange County real estate at the end of the lease period for the price of $150,000. In addition, the purchaser will lease the home for two years and pay a monthly rent of $1000 with $200 of the monthly rent going toward the down payment at the time of purchase. This gives the purchaser a $4,800 down payment at the time of purchase. It also locks in the price of the home, meaning that even if home values increase dramatically, the renter still has the option to purchase the home for the agreed upon price.

Why Would a Purchaser Consider a Lease Option?

There are a number of reasons why a purchaser may wish to consider a lease option. The most common reasons are that the purchaser is not able to obtain mortgage loan right now, but believes that he or she will be able to qualify in a year or two. Sometimes this is because the purchaser needs to clean up negative credit or because the purchaser has not been at his or her job long enough. Another common reason for considering a lease option is because the purchaser does not have the required down payment and a lease option will effectively provide that down payment. Another benefit to a lease option is that the purchaser is not locked into buying a home in Orange County; however, he or she will typically loose the option fee paid at the beginning of the agreement if the sale does not go through.

Why Would a Seller Consider a Lease Option?

Orange County real estate, along with the rest of the country, was hit hard by the recession. A seller may be strapped with a mortgage payment he does not want to make, but be unable to sell the home through a conventional sale. For this reason, the seller may be willing to consider a lease option agreement.

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