When you lease a property with an option to purchase, you pay a monthly rental fee just like you would if you were renting the property from a landlord. The difference is that you also pay a lease option fee, which gives you the sole right to purchase the property within a certain amount of time. During this time no one else can buy the property; you have exclusive rights to it. At any time during the option term you can exercise the option and buy the property at the agreed-upon sale price.
Why would I lease with an option instead of buying?
If you have the money or can obtain a mortgage loan to purchase the property right now, then that is most likely the best option for you. However, there are many situations where you might not be able to secure a bank loan. Example scenarios could be a recent divorce, medical payments, being laid off of your job, young age, etc. In these situations your credit may be too low and securing a bank loan is not an option. A Lease Option gives you the ability to live in the house now while repairing your credit score in order to secure a bank loan down the road.
An added benefit to Blessed Hearth’s Lease Option program is that you lock the sale price of the home, so even if the value of the home goes up you only pay the originally agreed-upon price.
What happens to the lease option fee that I paid?
If you choose to exercise your option to buy the property, then the lease option fee is credited towards your purchase price. However, if you choose not to exercise your lease option, then you forfeit the lease option fee. This fee covers Blessed Hearth’s cost for allowing you to have exclusive rights to buy the property.
Here’s one cool thing about the lease option fee: if you pay a sizeable fee in the beginning and exercise your option later, you may not need to pay much more when you exercise the option. For example, let’s say you find a house and we agree that you will buy it for $150,000 when you exercise the option. If you put down 10% for the fee, that $15,000 will pay for all of the closing costs and also pay for part or all of your down payment to the bank. So if you get an FHA loan that only requires 3.5% for a down payment to the bank, your down payment will be $5,250 ($150k x 3.5%). Add in the closing costs of roughly around $5,000 and your total is $10,250. You already paid $15,000 for the lease option fee, so when you get the bank loan you will actually be owed $4,750 from us at Blessed Hearth, which we will pay at closing! How awesome is that?
Is there a lot of extra paperwork with a Lease Option?
No. There is only one additional form that you must sign called the Option to Purchase. The form lists the terms of the agreement, such as the purchase price of the home, the term length, and monthly credit towards the purchase price.
What are all of the costs associated with a Lease Option?
As the buyer, you have the following financial responsibilities:
- Lease option fee
- Monthly rent
- Utilities
- Maintenance
- Renters Insurance
- Sale price of the home once option is exercised
Am I responsible for upkeep and maintenance of the home?
Yes. As a renter with full intention of purchasing the home, it is in your best interest to maintain the value of the home and make any repairs necessary. Letting the home fall into disrepair does not lower your purchase price, so there is no benefit to forgoing needed repairs. Blessed Hearth does not assume any maintenance responsibilities.
My credit is really bad right now. What can I do to raise it so I can buy the home?
This is the beauty of a Lease Option. You don’t need good credit right now. It is recommended that you contact a credit advisor so that you understand what you need to do to raise your credit to the point where a financial institution will provide a loan for you. If you need recommendations, please feel free to ask!
Does any of my monthly rent go towards the purchase price?
No. We used to offer this feature, but we found that it actually de-incentivized families to exercise their option and buy the house. It is in your best interest to raise your credit and buy the home as soon as possible.
How much do I need to get started?
There are a lot of variables with a Lease Option. But at the absolute minimum in the current economy, you are going to need to be able to put down at least 10% of the house’s purchase price for a lease option fee and the monthly rent depends on how much the purchase price of the house is. For example, if you are looking to lease with an option to purchase a home that we purchase for $150,000, you should expect to put down at least $15,000 for the lease option fee.
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Lease Option Action Plan
Blessed Hearth uses a unique process to buy your dream home. We can sell you a house that we already own, or YOU can be the one to choose the house you live in. Here’s how the process works:
Step One- Read How Our Lease Options Work: If you understand everything on this page, you have already completed Step One! But please feel free to Contact Us with any questions you might have. Once you understand the basics and if it sounds good to you, continue on to Step Two.
Step Two- Fill out a free Lease Application: Click on our Rent To Own Application link in the menu above and fill it out. Some fields are required but others are not. For those that are not, answer as best you can.
Step Three- Contact Us: We should get back to you within 24 hours of filling out an application. If you don’t hear from us within 24 hours, then call us at 715-446-0747 or Contact Us. When we get into contact with you, we will talk with you about how much you are able to afford.
Step Four- Find a House: If everything is agreeable to you up until this point, go on Zillow, realtor.com, the MLS, talk to an agent, or whatever is your favorite method of looking at houses. Schedule showings to go and see your favorites. Once you have found a home that you want to buy, let us know and we will put in an offer!
Step Five- Sign the Documents and Move In: If our offer is accepted, it will generally take around 45 days for Blessed Hearth’s lender to appraise the property and go through underwriting. You don’t need to worry about that part. But meanwhile, there are two forms that you will need to fill out. These forms are the Lease Agreement and the Option to Purchase. We will schedule a time to meet with you and discuss the terms of the agreement and sign the documents. At the time of signing, you will need the lease option fee money and the first month’s rent. Then on the day we close on the house purchase, you will be given the keys to the house. Congratulations!!!
Step Six- Exercise Your Option to Purchase: At some point during your lease, you may exercise your option to buy the house. This involves working with a bank to get a conventional loan. If you don’t have any credit or bad credit, don’t worry! The lease term is meant to give you time to repair your credit so that the bank will give you a loan. Usually the lease will be for one year, but if you find that a year is not enough time to be approved for a bank loan, we offer the option to extend another year with no increase in rent for that second term.