rent-with-option-to-purchase

Disadvantages of rent with option to purchase

Rent with option to purchase, which is also known as a lease and purchase of real estate, is a contract between a buyer and a seller that states that the buyer is going to rent the property for a period of time – usually from one to three years, at which time the buyer will have the option to buy the house. A portion of the monthly rent payment will be applied to the purchase price. In addition, the buyer will have insured the home of other potential buyers during the lease period. At the end of the lease, the buyer can buy the house, give up his purchase option or transfer the option to a third party. While lease and purchase agreements may make sense to someone who wants to buy a house, but doesn’t have the capital to make a full down payment,

Higher cost

Homes acquired under a rental agreement with an option to purchase end up with a higher purchase price than if the house were purchased directly. The Seattle Times warns that a home originally priced at US $ 250,000 could be priced at the US $ 290,000 after a one-year lease agreement, or the US $ 336,400 at the end of a two-year contract. In many cases, buyers end up paying a premium, in addition to the interests of a standard mortgage.

Higher payments

The rent control laws of several states do not apply to rental agreements with a purchase option, which means that these agreements are not subject to the income limits established by law. In addition, the monthly rent that is paid under a lease option will probably be higher than the rent that would be paid under a standard rental agreement. This is because it is not only the payment to occupy the space, it is also paying for the option of buying the home at the end of the lease period.

Buyers with credit problems or financial difficulties may consider renting a property for a year or two before giving a deposit for another house.

Possible eviction

Rental contracts with the option to purchase often include clauses that justify expulsion in certain situations. Sometimes, all that is needed is a single lost or late payment for the seller to evict you, without the obligation to return the money or reimbursement of the difference between normal rates and payments for rent with option to purchase. In addition, you will lose the option to buy the house. Buyers who are unsure about their ability to adhere to the terms of the lease agreement should not run the risk of entering into a lease with purchase option.

Cancellation of contract

Rental agreements with a purchase option between a buyer and a private seller may not include a provision for what happens with the contract in case the property is transferred to a third party, or the seller suffers disability or death. In these cases, the new owner may be justified to terminate the rental agreement without having to return the money. Although insurance can cover losses due to these circumstances, a buyer may lose his house involuntarily even if there are only a few months left in the lease with purchase option.