The advantage to the tenant/buyer is the ability to begin building equity in the home during the lease period, usually at a faster rate than a standard mortgage. It is important to note that if the option to purchase the home is not exercised that the credit is lost.
Lease option to buy example
Home Price $200,000
36 Month Lease
3% Option Fee = $6000
The option fee is paid at the beginning of the lease. This gives the buyer the option to purchase the home for a given price at a given time (usually at the end of the lease). This fee in non-refundable and usually does not constitute a down payment, deposit, or credit.
Monthly Rent = $1800
The amount the tenant/buyer pays on a monthly basis to live in the home during the lease period
Monthly Rental Credit = $500
This amount is credited towards the down payment on the home at the time of the purchase.This accumulates during the lease period on a monthly basis. At the end of a 36 month lease the accumulated rental credit would be $18,000.
At the end of the lease the tenant becomes a buyer and is required to secure financing to purchase the home. In this example the buyer would pay the purchase price less the accumulated monthly rental credits.
$200,000 – $18,000 = $182,000
For more information, contact Starting Point Real Estate!