Lease Options

A lease option is an arrangement between you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent would be applied toward the purchase if the option is applied. This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application. Read any lease-option arrangement carefully for details on transferring the option and other important concerns.

For information on lease options, contact your real estate agent (some even specialize in such transactions) or read up on lease options at the public library or on the internet. If you have a real estate attorney, ask if he or she has any prepared information you can review.

Find out what other homes have sold for in the area, how much money you might have to put into repairs or renovations. These considerations factor in with how much you're comfortable spending.

Also, it helps to know the features that help or hurt resale. In some areas, a swimming pool actually detracts from a home's value and makes it harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may affect the home sale and future value.

In addition to sale prices for other homes, there are several ways you can determine a good amount to offer:

• The condition of the house. Is the home in move-in condition, in need of paint and other cosmetic improvements, or a fixer-upper that needs some real work?
• The market. If you are in a buyer's market — where there are more homes for sale than there are people to buy them — prices are probably stable or falling. If you are in a seller's market — where there are more buyers looking for homes than there are homes for sale — prices are probably moving upward.
• Your ceiling. If you've gotten a credit pre-approval, you know how much you can borrow for your home purchase. Of course, you may not be comfortable paying as much as you've been approved to borrow, so think carefully about your financial situation before making an offer.

Next, decide how much you are willing to pay for a home. Remember, the advertised price of a house is just a starting point – it may take quite a bit of negotiating to arrive at a final cost.