RISKS AND BENEFITS OF THE LEASE OPTION

Benefits of Renting to Own:

• You can qualify for home ownership even with bad credit or little money.
• The option to buy gives you enough time to repair your credit while you are renting.
• Part of your monthly rent will be credited towards the price of the house at the end of the option agreement, if and when you exercise your option to buy.
• Option payments are usually lower than a down payment. If the price of the house shoots up, you will be buying it at the price stated in the option agreement.
• Since the sales price is locked in the option agreement, your equity will increase with any increase in house value.
• You will not have to pay any move-in costs when you actually buy the house because you already live there.
• Unlike other homeowners you get to "try before you buy."
• You don't have to pay taxes or insurance while you are renting.
• Usually, you take care of only minor maintenance and repairs. (Make sure the option agreement covers this. Many times, responsibility of all major and minor repairs and maintenance are put on buyers' shoulders.)
• If your option agreement allows you to sell your contract, you may sell it to a third party for a profit. Usually this can only be done with the seller's permission.

Risks of Renting to Own:

• If you decide not to buy the house at the end of the option period, you will lose all your option payment, plus part of the rental money that was credited towards the down payment.
• Until you buy the house, you will not receive the tax benefits of home ownership.
• Any investment that you make on house repairs or maintenance will be lost if you choose not to buy the house.
• If stated in option agreement, your late rental payments or lack of proper care of the house may cause cancellation of the sale by the owner, resulting in the loss of your option payment.
• Just because you make timely rental payments, does not guarantee the property owner is also paying timely mortgage payments or property taxes. This can result in loss of your investment to foreclosure. Protect yourself from this in one of several ways: Make payments to the lender yourself; hire a third party (escrow) to make the payments to the lender; record the Option to Purchase Contract in the county recorder's office.
• The seller refuses to consummate the transaction. This can occur if the property value has risen above what the option price calls for and the seller wishes to sell it to another person for a higher amount. Again, the actions that would protect you in this circumstance would be recording the Option to Purchase Contract, making it difficult for the Seller to sell the property to somebody else.
• If the owner dies, the property is typically thrown into probate court unless the property is in a trust.
• Many lease-option agreements put the responsibility for repairs and maintenance entirely on the buyers' shoulders. Make sure that when leasing, you ALWAYS do a FREE pest inspection, FREE roof inspection by a licensed contractor, and a home inspection (that you will need to pay for) by a general contractor or a licensed home inspector. That way, you will know what condition the major components of the house are in.

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