Can someone explain the difference between a purchase option and a lease option. In addition, explain how either of these will work with "getting cash at closing".
From my experience and understanding, A purchase option is when you simply have an option to buy a property. You may also be a renter it in the meanwhile or you may not. But typically what you see is the person who has the right to buy also is renting. The term lease option is typically used when an investor owns the property and is now trying to sell it to someone who is not yet qualified to get a mortgage. So that person, in the meanwhile, will be renting the house for a period of time, and have an option to buy. They use the time of the lease as a time to clear up any hurdles that are preventing them from gettign a mortgage, such as bad credit.
Cash at closing occurs when you are buying a propery where for whatever reason, the seller winds up crediting you funds such as refund of earnest money deposit, tax credits, escrpw for repairs needed, transfer of lease deposits, etc..
Good luck, and If you have any more questions pertaining to mortgage financing, especially in chicago area,please email me at mortgageloans123 at yahoo.
Quote:Can someone explain the difference between a purchase option and a lease option. ablessedmind,
I believe you already got a definition of an option, also called an option to purchase, a purchase option, or a straight option.
I wonder, though, whether you may really be referring to the difference between a lease purchase and a lease option. These terms do have specific meanings and it is important that you understand the difference.
If I lease your property and you give me an option to purchase -- a lease option -- then I am your tenant until I decide to exercise my option to purchase your property. The option creates an obligation for the seller to sell the property to me at the agreed option price at any time within the option period. The buyer may choose to exercise his option to purchase, but is not obligated to do so.
A lease purchase is similar, in that I am your renter for some period of time before I purchase your property. The difference here is that the lease purchase obligates the buyer to purchase at some point within the option period.
The most common way to get cash back at closing is with a lease option -- a sandwich lease option in particular. I lease option the property from the seller and also get a tenant to lease option the property from me. The purchase price I pay the seller will be less than the purchase price I get from my buyer. When my buyer decides to exercise the option to purchase from me, I also exercise my option to purchase from my seller. We have a simultaneous closing, and I walk away from the settlement table with cash in pocket.
I am doing a cash out deal (as we speak) with a purchase option agreement. It will require a double closing.
I have the purchase option with a negotiated price between the original seller and myself and then I have sales contract between the buyer and myself.
At the closing, I will have the purchase option between the seller and myself. I will have title for maybe 5 min and then it will be transferred over to the buyer. Funds will be cut to me--I will pay the seller and walk with cash.
This is the same thing your referring to right NewkidInTown?
Well if you do a lease option, then you can negotiate a smaller deposit down and collect a larger deposit from your tenant buyer, then wait to be cashed out once the buyer gets financing.
Still a double closing.
From my experience and understanding, A purchase option is when you simply have an option to buy a property. You may also be a renter it in the meanwhile or you may not. But typically what you see is the person who has the right to buy also is renting. The term lease option is typically used when an investor owns the property and is now trying to sell it to someone who is not yet qualified to get a mortgage. So that person, in the meanwhile, will be renting the house for a period of time, and have an option to buy. They use the time of the lease as a time to clear up any hurdles that are preventing them from gettign a mortgage, such as bad credit.
Cash at closing occurs when you are buying a propery where for whatever reason, the seller winds up crediting you funds such as refund of earnest money deposit, tax credits, escrpw for repairs needed, transfer of lease deposits, etc..
Good luck, and If you have any more questions pertaining to mortgage financing, especially in chicago area,please email me at mortgageloans123 at yahoo.
bump...i would love more info from others.
Quote:Can someone explain the difference between a purchase option and a lease option. ablessedmind,
I believe you already got a definition of an option, also called an option to purchase, a purchase option, or a straight option.
I wonder, though, whether you may really be referring to the difference between a lease purchase and a lease option. These terms do have specific meanings and it is important that you understand the difference.
If I lease your property and you give me an option to purchase -- a lease option -- then I am your tenant until I decide to exercise my option to purchase your property. The option creates an obligation for the seller to sell the property to me at the agreed option price at any time within the option period. The buyer may choose to exercise his option to purchase, but is not obligated to do so.
A lease purchase is similar, in that I am your renter for some period of time before I purchase your property. The difference here is that the lease purchase obligates the buyer to purchase at some point within the option period.
The most common way to get cash back at closing is with a lease option -- a sandwich lease option in particular. I lease option the property from the seller and also get a tenant to lease option the property from me. The purchase price I pay the seller will be less than the purchase price I get from my buyer. When my buyer decides to exercise the option to purchase from me, I also exercise my option to purchase from my seller. We have a simultaneous closing, and I walk away from the settlement table with cash in pocket.
I am doing a cash out deal (as we speak) with a purchase option agreement. It will require a double closing.
I have the purchase option with a negotiated price between the original seller and myself and then I have sales contract between the buyer and myself.
At the closing, I will have the purchase option between the seller and myself. I will have title for maybe 5 min and then it will be transferred over to the buyer. Funds will be cut to me--I will pay the seller and walk with cash.
This is the same thing your referring to right NewkidInTown?
Well if you do a lease option, then you can negotiate a smaller deposit down and collect a larger deposit from your tenant buyer, then wait to be cashed out once the buyer gets financing.
Still a double closing.