“I’m saving up money for a down payment, but I’d like to get into a house now since prices are so attractive and there are so many homes for sale to choose from. What do you think of getting a home on a lease-option?”
There are some pros and cons, that I’ll go over in a moment.
But first, be aware that lenders are loosening up on down payments. Vets can still buy zero down, FHA loans are just 3.5% down, and even conventional loans are available with as little as 3-5% down.
=== Upsides To Lease/Options: ===
1. You Lock In A Price Now
You have the right to buy a home at a locked-in price at a future date, even if you’re not able or willing to buy it right now.
2. Less Risk
At the end of the lease/option term, if you decide you don’t want the home, you can walk away, losing only the “option money” and any excess rent you paid.
=== Downsides To Lease/Options: ===
1. VERY Hard To Find
It’s a rare owner who’ll agree to a lease/option. In fact, so rare your odds are better finding a needle in a haystack then finding a home you like where the owner will agree to one.
Lease/options are complex and few agents understand them. I’ve seen several lead to lawsuits. Do the contracts correctly now or you may be going to court later.
3. Loss Of Option Money
If you don’t exercise your option, you lose your up-front “option money” plus any extra rent you might have paid.
4. Lease/Options Are Void If The Home Is Foreclosed!
While foreclosures are much less prevalent that they were, be aware that if the home is foreclosed, the option is null and void.
Overall, downside #1 (hard to find) is enough for me to tell you not to plan on a lease/option.