Lease options are a powerful way of getting your foot in the door, so to speak. Signing on the dotted line of a lease option contract gives you control of the property. Yes, you are still primarily renting but in a different aspect. You now have the right to purchase the home at the end of the specified lease option period for a stated purchase price. If you were just renting, this wouldn't be possible.
But wait! There are some issues you must consider first. Before you even start looking for a home to purchase on a lease option contract, you must determine what price of a home you can afford. The best way to do this is to contact a lender and get pre-qualified. Getting pre-qualified is based on the total amount of your annual gross income, debt ratio and your FICO score. The lender will advise you as to what price of a home you should be looking for and also what your approximate payment on that price would be. If you're pre-qualified for a $100,000 home, then you don't want to be looking at homes that exceed that price. Get the picture?
Ok, you've found the home of your dreams, but now what? Who does what? You should first inspect the property from top to bottom. It's best to have a qualified home inspector inspect the home; he will more than likely see something you've missed. Determining the price to offer on the home to the homeowner can be made directly by you or through a realtor that is representing you. If this is the first time out for you, I would suggest using a realtor as they are qualified to determine the present market price of the home. Now you're ready to make an offer.
Once your offer is accepted and agreed to by both parties for a lease option purchase, it is time to sign a contract. Now this is the most important step. Consult a real estate attorney. I'll say this again. Consult a real estate attorney. Real estate attorney's are very qualified and knowledgeable in real estate law. The lease option contract that you use should be state specific and drawn up by an attorney specializing in real estate law. This is to protect you! Your attorney will act in your behalf to protect you legally if anything down the road happens.
Do you know that if the seller lives out of state and he breaches the contract, that you can file a lawsuit in the county and state you dwell in but you would have to transfer the lawsuit to the state the seller resides in because you have to file a lawsuit in the sellers domain, and this can be very costly.
What about the property insurance? More than likely the seller has a mortgage on the property. The lender requires a specified amount of insurance on the home in order to protect the loan. The insurance must be an adequate amount equal to the present value of the home. Make sure the seller has notified the insurance company of the intent to vacate the property and that a tenant will be residing in the property. This will create an increase in the insurance premium and you want to be sure you are going to be able to afford the monthly payment with the insurance rate increase.
Depending on the terms of the lease option agreement, you may or may not be responsible for any repairs to the property. Be sure to have this specifically written in the contract as to what you will be responsible for and what the seller will be responsible for.
During the lease option period I would suggest working on any credit issues you may have so you will be able to be qualified by a lender in order to be able to purchase the property at the end of the lease option contract time frame. It would also be advisable to save money during this time to apply towards your down payment when it's time to purchase the home.
Until then, Happy House Hunting!
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