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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
It's not too late to make a lease-option deal on a rented home
Real Estate Adviser

Buying a lease-option home

Dear Steve,
I have been living in a lease-option home for nearly two years. I like the place and have now decided I'd like to purchase it at the end of my third year. However, the accumulated-monies arrangement was not in my initial contract. Was that a big mistake on my part? Is it too late?
-- Marshall C.

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Dear Marshall,
No, it's not too late. And because of current market conditions, your "mistake" may not end up costing you much of anything.

Unless there is a conventional buyer waiting in the wings or some other sale arrangement to which you're not privy, you can still forge a lease-option deal, assuming the landlord/owner is willing. With values stagnant or still dropping in most markets, your terms may actually be better now than they were a couple of years ago, and the owner may be even more willing to deal than when he first offered you the option. In fact, you may be able to lock in a lower future purchase price than you would have two years ago!

In a lease-option arrangement, you are basically paying money to the seller for the right -- but not the obligation -- to later buy the property. A lease-purchase, on the other hand, obligates you to buy.

Of course, you will still be out the two years of rent you've paid. In most lease-option arrangements, that extra money you pay for the right of option isn't what is directly applied to your down payment. The rent money is. But given the slow market conditions, don't hesitate to ask the landlord if he can give you some form of prorated credit for the rent you've already paid him. It's worth a try. After all, the terms of these option arrangements are always negotiable.

Most lease-options span one to three years in length. You may be able to accomplish with your one-year option horizon what you would have accomplished in those two lost years, providing you can afford the extra rent/option money you'll pay in such an accelerated scenario. Whatever agreement you strike, make sure it's structured so no one else but you can purchase the home during the option period. And I may sound like a broken record on this, but have a real estate lawyer or other qualified attorney review the lease-option contract, if at all possible, before you sign.

Another suggestion is to make a flat-out offer for the place, subject to financing, that is less a set percent of the rent you paid over the last two years. Of course, with subprime financing tougher to come by now, that may be a challenge if your credit is poor or not established.

One buyer objective of a typical lease-option -- the "tire-kicking" phase that allows them to size up the place as they live in it -- is already moot since the house has obviously passed muster in your eyes.

Bankrate.com's corrections policy -- Posted: Dec. 9, 2007
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