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Articles  >>  Understanding Lease-Options

What is a lease option?

What is a lease option?

Sometimes when a buyer needs a little extra time to purchase a home in the St. George Real Estate market, due to bad credit, or not enough money to put down yet, or isn't able to obtain a loan on their own, seller's will sometimes consider "A lease option".  Every part of the country has different standards for lease options, but most are very similar. A Lease option is an agreement between the buyer and the seller which allows the buyer to purchase the home from the seller after an agreed upon amount of time, and usually with considerable amount of "option money" (which is essentially a down payment, and usually non-refundable). Once the option money is put down, and the contract is executed, the buyer is allowed to move into the home for a specific amount of time (as designated in the contract), at which time the buyer needs to get their permanent financing in place, or pay cash for the remaining balance of the home (Purchase price, minus "option money") Sometimes a portion of the buyers rent may be applied toward the purchase of the home, but not always. If the agreement includes this, it's referred to as rent credit. Most lenders will allow this money to be part of the down payment, as long as the rental payments exceed the normal going rate of rent. These terms must be part of the official agreement.

Simply put, a lease option gives a buyer the option to rent or lease a property and buy the home sometime in the future. The price will be determined when the lease option agreement is signed, BEFORE the buyer moves in. 

St. George lease options are very flexible as long as the buyer and seller agree to the terms in the contract. Usually a large amount of option money will be required. But if the down payment is smaller, then the monthly payment will usually be much higher. Very similar to getting a loan with a mortgage company.

You won't see too many lease options when the market is hot. This is due to the fact that sellers will have no trouble selling their home and won't have to resort to a lease-option.

Risk involved with lease options

In most cases, the home buyer doesn't actually end up buying the home. Many times, the reasons the buyer is pursuing a lease option is because they don't currently qualify for a loan, but are hoping to at a later date. But often, the buyers find out that they still can't qualify due to lack of income, poor credit, or lack of money available to put down.

If this happens, the money invested in the lease option is typically forfeited.

Benefits of lease options for the buyer

  • Because the lease option is usually exercised in a slow market, the buyer has the potential to make a profit from the home if the real estate market were to change.
  • The buyers get into the home they want to buy, but can't yet afford.

Benefits of lease options for the seller

  • They have the chance to sell their home during a slow market, and will often get a higher price then what they'd normally be able to get.
  • They can get a larger monthly payment from a lease option rather than a normal lease.
  • If the buyer decides not to purchase, the deposit money is the sellers to keep.

The lease part of the form is pretty straightforward most of the time and is just like any other lease. The option just means that you have an "option" to purchase the home within a specified period of time. It makes sense to specify the option price in the lease/option contract.

If you have any questions regarding Real Estate in Southern Utah, or Real Estate in St. George Utah, Ivins Utah, Santa Clara Utah, Hurricane Utah or Washington Utah, please feel free to call us at 435-862-3303 or e-mail us at HotHomesofSTG@aol.com

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