Suffolk County NY Lease Option Full of Pitfalls
Before you consider a Suffolk County NY lease option, you should be aware of how it works, who benefits and the many things that can go wrong.
In a Suffolk County NY lease option, you rent a property at a cost slightly above market rate. Prior to moving in, you agree on a potential purchase date and purchase price for the home. You may buy the property at any point during the rental period up until the lease option expires. The lease option period can be any length of time that you and the seller agree to, ranging from several months to several years.
If you do end up buying the property, the seller will usually credit part of your rent back to you, usually more than the portion of your rent that was above market rate. You can put this money toward a down payment and closing costs, or keep it. The purpose of the above-market rent is to give the seller an incentive to complete the transaction. If you do not buy the property, all of the rent you paid remains with the seller, giving the seller an incentive for taking the property off the market during the time you were renting it.
Suffolk County NY Lease Option Benefits to Buyers
The biggest reason a rent-to-own agreement appeals to buyers is financial. If buyers don't yet have the down payment or the monthly income to qualify for a mortgage but believe they will within the next couple of years, a lease option allows them to accelerate the path to homeownership. By signing a contract now, the buyer locks in a purchase price, which means no worrying about rising home prices. Don't be surprised if, in this rapidly appreciating real estate market, the seller of a lease-option property wants to add a clause to the contract allowing for the price of the home to increase with the market.
Suffolk County NY Lease Option Benefits to Sellers
The biggest reason a seller would want to enter into a lease-option agreement is also financial. They may be having a hard time selling, and rent would at least help cover the cost of the mortgage, property taxes and insurance. A seller is also assured that a lease option tenant would take care of the property, since they hope to one day own it.
Suffolk County NY Lease Option Pitfalls
A Suffolk County NY lease option doesn't always work out. Before entering a rent-to-own agreement, a potential buyer should:
Check the seller's credit report. Look for potential warning signs that the seller is in financial trouble, such as delinquent accounts or a large amount of outstanding debt. If the seller balks at allowing you to check his/her credit, proceed with caution. Even after a satisfactory credit check, a potential buyer who currently lives in the home should still pay attention to any warning signs that would indicate the seller is in financial distress. Some examples include phone calls from debt collectors and suspicious-looking notices that are sent to the house.
Even an iron-clad Suffolk County NY lease option agreement won't hold water if the lender forecloses on the property you intend to buy because of financial distress. If the seller loses the property, you, as the potential buyer, loses the possibility of buying the property and forfeits the extra rent paid. In addition, you will have to find a new place to live.
Make sure you have a lease option agreement, not lease purchase. The former grants the option to buy at any time during the rental period,while the latter requires purchase by the end of the lease period and has legal ramifications for backing out.
Ensure that your Suffolk County NY lease option clearly states who is responsible for various types of maintenance or repairs. This agreement should also specify the types of changes or improvements (if any) the potential buyer is allowed to make to the property during the lease term.
Understand that a seller can refuse to sell at the end of the lease option period. This means that all the above-market rent money you've paid will be lost. A seller may also try to back out of the contract if the real estate market has appreciated rapidly and the property significantly increases in value. Of course, neither of these actions is legal, but if the buyer doesn't have the financial resources to hire a lawyer, there won't be much recourse against a shady seller.
Understand that should the market declines, the buyer will still have to pay the higher price stipulated in the contract to own the home. However, if the price is too high, the lessee can just walk away and shop for a different property. However, the buyer will lose that portion of the rent that would have gone toward a down payment, so it's important to do the math necessary to determine whether walking away is the best option.
Make sure you can buy the property. It is possible that you won't qualify for the mortgage loan required to make the purchase at the end of your lease option period. Finding this out before entering the agreement can save a lot of grief down the line.
While Suffolk County NY lease option arrangements can have many potential pitfalls, they can be a win-win situation between a trustworthy seller and a prudent, financially responsible buyer. If you can find an arrangement that you can agree on and a house that you'd like to own one day, this could be the perfect way for you to step out of your apartment and put down some roots.
Talk to us about other potential problems you could run into with a Suffolk County NY lease option. We'll be happy to discuss this method of home ownership with you.