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What is a Lease-Option Contract?

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  • Written By: Tiffany Manley
  • Edited By: A. Joseph
  • Last Modified Date: 25 November 2016
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A lease-option contract is a contract stating that a property will be leased for a specific period of time with an option to buy at a future date. Lease-options are different from lease-purchase agreements in that the buyer has the option to buy the property as opposed to being required to purchase the property as set forth in a lease-purchase contract. Lease-option contracts generally are exercised in a slow market and by people who might not have the ability to qualify for a home loan or who lack the funds for a down payment.

When executing a lease-option contract, a buyer usually must pay option money. The seller is allowed to keep this money if the buyer does not exercise their option to buy the home at the end of the contract period. If the buyer does exercise their option, the option money usually is used as a down payment on the purchase of the home.

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There are several things that a buyer should consider when thinking about entering into a lease-option contract. It is important to negotiate how much a monthly payment will be, how much of that payment will be held aside as a down payment, who will make repairs and who will handle closing costs. A buyer also should ensure that he or she begins the qualification process for the home loan in a timely manner before the contract expires. It also is important for a buyer to understand that the value of the house might fluctuate.

A lease-option contract gives buyers a few benefits. One of these is the ability to ease themselves into home ownership. If the buyers are used to making the monthly payments and maintaining the property, it will be second nature after they’ve exercised their option to buy. In addition, the contract might allow buyers to purchase a house they love but for which they otherwise would not qualify.

Sellers experience benefits as well. Offering a lease-option contract on a home might make it easier for them to sell their home in a down real estate market. They also might be able to keep the option money if the buyers choose not to purchase. Many times sellers can sell their home for a higher price than they would have been able to in a normal real estate transaction.

All parties involved with the lease-option contract should ensure that they have trustworthy professionals helping them with the process. These professionals can provide negotiating guidance and can review the contract. With the right circumstances and a little bit of research and hard work, a lease-option contract purchase can work well for both parties.

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