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Lease Options

The lease options are another form of lease to own or rent to own. The buyer can buy his way to purchase the home. Within the agreed number of lease years, the buyer has the option to purchase the home with the agreed home price.

There are two options for the buyer. That is the lease option or lease purchase. The two options are very similar. The main difference between lease option and lease purchase is that the buyer will definitely purchase the home with lease purchase.

In lease option, the buyer may decline to purchase the home within the agreed number of lease years. Usually, the number of lease years range from one to three years. There are many unforeseen events that make the buyer to decline the purchase of home.

The buyer declines to purchase the home, when the home depreciates in value. That means the agreed home price is higher than the market value. The buyer may want to finance a home with the lower home price. So, the buyer might try to find another home in a lower home price.

The buyer also declines when the interest rate significantly increases. The mortgage payment significantly increases as the mortgage interest rate increases. The mortgage payment may be too high for the buyer to afford.

The buyer also declines when the home fits another type of homeowner. To buy a home are one of the biggest decision in our lifetime. The buyer worries to commit on a large purchase in which the home fits another type of homeowner. The best thing about lease option is the buyer can try before the buyer actually purchases the home.

The seller still owns the home while the buyer leases the home. Naturally, the seller can still use the mortgage interest tax deduction. A part portion of mortgage payment is the mortgage interest which is a substantial and beneficial for the seller.

A loan amortization schedule from loan amortization mortgage calculators shows the amount of interest on each mortgage payment. The mortgage payment can be broken down into principal, and interest.

The buyer finances the home price that is agreed upon on the agreement. The purchase price remains the same as the home depreciates or appreciates in value.

The lease includes the lease and premium. The premium will be credited to purchase the home. That means the equity grows at the start of lease. In the event of decline purchase, the buyer loses the all the paid premium.

2 Comments:

Blogger b52radar said...

Ok, third try on this question... Please help... My mother has a house in Texas she is selling as a lease/purchase. The house has been paid off for quite sometime now and she is essentially playing the bank with a 5% interest and 150.00 credit each month to the principle of the house at closing. This is the end of the first year and the buyers are requesting a mortgage interest statement. Is this allowed? Is it a negative option for my mother? How does the IRS view this? Thank you... Matt

7:21 AM  
Anonymous Dennis said...

As I understand, your mother owns the house. And, it is fully paid. So, there is no more mortgage interest deduction.

When your mother sells the house as lease purchase, she still owns the home. The buyer could not claim the mortgage interest. Unless the buyer decided to purchase the house, the buyer can not claim the mortgage interest. The buyer is just leasing until he finally purchase the house for real.

4:57 PM  

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