A Lease Option to Purchase real estate is a valid and legal buying technique. It is a lease for a fixed period with an option to buy on a future date. The price of the property usually is agreed upon at the inception of the agreement. An important concept when entering into this type of arrangement is to remember that the tenant has the advantage.
Qualifying for a loan these days can be a very trying experience. If everything in your background is not perfect including a high score on your credit history, the probability is that you will not be able to obtain a conventional loan. Owner financing usually goes hand and hand with the Lease Option to Purchase.
Ease of qualifying for an owner finance loan provides the tenant with a valuable tool when it comes time to exercise the option. Another important issue in favor of the tenant is that backing out of the deal can be invoked anytime before the option goes into effect. The law is quite clear in granting the tenant with the right, but not the obligation, to purchase the property.
However, nothing in this world is completely free. If you as the tenant have decided no to go through with the options portion to purchase, penalties of various kinds can be written into the agreement.
For example, the tenant and the owner may have agreed to allow a portion of rent payments to apply towards the down payment on the property. The penalty for not exercising the option to purchase may remove this stipulation. The tenant may have given the owner “Earnest Mone” prior to leasing the property. Failure to perform could cause the front money forfeited without any recourse.
Our Residential Lease Option to Purchase Form has many provisions for extensive financial terms and just about anything else that both parties wish to include. This Document is a well-written form that can do much to create a smooth transaction and protect everyone involved.
The final agreement is made up of two parts. The Lease or Rental Portion and the Options Portion. Many issues that most people forget have to be addressed, such as disposition of deposits if the “Option” portion is executed, and disbursing of deposits if the “Option” is NOT executed.
The “What Happens IF” or “What Happens IF NOT” is the theme of our form.
In addition to our official Lease Option Form, we have included two Sample Letters. The first one is a letter of intent from the tenant to notify the owner in the event a decision is made to Exercise the Option to purchase.
The second is an Assignment Letter, which may be used in the event the tenant decides to Assign the Option to Purchase the property to someone else. A tenant may have every intent to follow through with the purchase, but, as we all know circumstances do change. The loss of a job, loss of a spouse or a changing financial situation may cause the tenant to opt out and not go through with the purchase.
If you select to fill out the form online, here is a check-off list containing the pertinent information that you will need to complete the Residential Lease Option to Purchase Form