Tip #5 - Lease / Options Pt 2

As I promised last time, we're going to dive into a little more detail on lease/options and some of the things that you should be aware of. We'll do this by answering the questions that I gave you at the end of the last article.

One of the questions I asked last time was: What happens at the end of my lease?

For most people, if you haven't made intentional plans and started the home buying process and set a closing date before the end of your lease/option, you are at the mercy of the property owner.

If they are nice, they could extend out your lease until you actually closed on the property.

But if they wanted to, they could force you out of the home, even if your closing date was set for the day after the end of your lease! I know that sounds horrible, but I hear stories like this all the time.

Why would someone do something like that? Because they never had the intention of selling you the house in the first place. They know that most people who go into a lease/option won't be able to purchase the home in 12 months or less.

So how do you protect yourself?

You want to make sure that your lease/option agreement has it in writing that you are allowed extensions to your lease/option at either 6 or 12 month intervals to allow you extra time to get a loan if you aren't able to get it within 12 months.

Especially in this market, being able to qualify for a loan in 12 months is difficult. In reality, you ought to be thinking 18-24 months to get properly "seasoned" and qualified to get a loan.

Get it in writing!!

In our contracts, we have an automatic 12 month extension at the end of the first 12 months with a 60 day notice and as long as the monthly payments are being made in a timely fashion.

After the 12 month extension, we allow for additional 6 month extensions for as long as necessary as long as payments are being made in a timely fashion.

Our contract basically says that we'll extend the lease as long as necessary.

Especially in this market, this is important. You don't want to get into a situation where you have a ticking time bomb at the end of 12 months.

If the seller really wants to sell the house, then they shouldn't mind extending out the lease/option to accommodate you getting a loan. And if they don't mind, then they shouldn't have any problem putting it in writing on the contract to protect your interest.

Most of the problems people have with lease/options happen because they got to the end of their lease and were forcibly kicked out of the house because they didn't close by the end of their contract, regardless of how well they paid or how much they put down as a down payment up front.

By making sure that you have extensions in your contract, you will protect yourself from this type of situation.

Another important thing to keep in mind is not only to have extensions built into your contract, but to have a definite plan to qualify for a loan.

We'll get more into this next time.