A lot of people have asked me recently – “What is a lease option?”, so I thought I’d take a minute to explain it clearly.
There are times when selling a property for cash is neither preferable nor possible. This is particularly the case when a property has little or no equity in it. Also, if a seller is looking for a decent sale price or needs to stop paying the mortgage and move on, then it can help to use an instrument called a lease option.
New problems, new way of thinking
Although relatively new in the UK, lease options have been used in the USA and Australia for over 30 years. A lease option is a combination of a “lease” and an “option”. The lease allows a buyer to rent the seller’s property and to become responsible for the seller’s mortgage payments. The seller can move out of the property without the burden of any further mortgage payments. In return, the seller grants the buyer the right to purchase the property at a specific price in the future. This is the option part of the deal. The agreed sale price is usually close to today’s market price and the period to exercise the option is usually between two and five years.
Win-win situation for both buyer and seller
During this period, the buyer pays the seller’s mortgage and becomes responsible for looking after the property as if were already owned. The process takes 7-14 days to set up, dependent on the speed at which solicitors work. Due to the flexible nature of a lease option, it is possible to structure it so that it can completely adapt to your circumstances.
A lease option would suit the following situations:
- The seller needs to move on immediately without further mortgage commitments.
- There is little or no equity in the property.
- The seller does not need a large lump sum of cash immediately to move on.
- The seller wants to secure a price that is close to today’s market price regardless of the state of the housing market in the future.
- The seller has mortgage arrears and is facing repossession.
Another tool in the toolbelt
This is but one of the tools we use at My House Broker to ensure that no matter what your situation, you can get that all important sale and move on with your life. To find out more call us on 020 3151 2006, or email us on firstname.lastname@example.org.
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