Purchasing a home can be one of the most exciting times in your life; however, finding out that you haven't yet built enough credit to qualify for a conventional loan can dash your dreams to pieces. Do not despair. There is another way to purchase the home of your dreams: You can lease with an option to buy. Even if you have enough credit to qualify, you may decide to use this option so you can test drive an area before taking on a 30-year mortgage.
Add up how much you are willing to spend on an option. Many owners offering a lease option require that the potential buyer put up some cash to purchase the option at the front end of the lease. Others allow the lessors to pay higher than average rent each month for a predetermined amount of time, with a percentage of each payment going toward the final option price.
Meet with a mortgage company or bank to determine what the chances are that you will qualify for a loan at the end of the option term. Many young couples run into trouble because they go into lease options on homes they cannot qualify to buy later and they lose their option money. Sitting down with your banker and getting some advice on how large a loan you will be able to eventually carry will help you protect that option investment.
Shop for a house. Once you are armed with some cash for an option, advice from the bank on how much to spend and a driving desire to pursue home ownership in the immediate future, you can begin your house hunt. Search areas in which you want to live. If working with a real estate agent, provide her with a list of wants and non-negotiable items, so she can narrow the list of homes you will visit. Taking your time and seeing more than one home can help you choose a home with which you will be happy.
Draw up a rental agreement with the landlord that details how much rent you will pay each month. Be sure to include the option clause, which, along with the price you agree to pay for the house, should also detail how much cash is being put down on the front end of the option, whether it will be applied to the final down payment if you exercise the option, and whether a portion of your monthly rent will go toward the option. It is good to have several option dates so if you get to the first one and still cannot qualify for a mortgage loan, you have the ability to extend it to another date. If the homeowner is hesitant to provide more than one option exercise date, you might offer to include a clause that calls for additional option money if the first date cannot be met. This may entice the homeowner to agree to multiple possible option exercise dates. The lease should also detail who will pay for needed repairs during the rental period.
Pay a real estate attorney to look over the contract and be sure it is valid. He should be well versed in lease option sales and be able to tell you if there are loopholes that could cause you to lose out on the house, as well as your option money, when you try to exercise your option to purchase. It is also a good idea to have a home inspection conducted before signing the final paperwork so you don't discover structural damage or major mold issues during the rental period. This could cause you to walk away and lose your option money. It is better to find out ahead of time if there are any issues that will need repair before you sign the final papers.
Candace Webb has been writing professionally since 1989. She has worked as a full-time journalist as well as contributed to metropolitan newspapers including the "Tennessean." She has also worked on staff as an associate editor at the "Nashville Parent" magazine. Webb holds a Bachelor of Arts in journalism with a minor in business from San Jose State University.