Q: I own a property and am considering a lease with an option to buy instead of just leasing the property.
I have a mortgage on the property, and what I’m wondering is if I can do a lease/purchase on the property to someone even though the property is mortgaged?
I pay the mortgage on time each month.
A: If you own the property, you can do a lease/option, which allows the renter to accumulate some down payment money as well as have an option to purchase the property as some point in the future.
Leasing this rental property is acceptable. The only different thing is that typically with a lease/option, you would negotiate the purchase price at the beginning of the lease/option period.
If the option is picked up, all you need to do is schedule the closing date, hire an escrow or title company, and provide any state-mandated disclosure. Unless your loan is assumable (meaning that the future buyer can assume the mortgage from you), you will have to pay off the mortgage with the proceeds from the sale.
The buyer will have to get approved for a loan in his or her own name. And that’s typically the reason why many first-time buyers want to do a lease/option – they can’t quite qualify to buy the home that they’ve decided they want.
Doing a lease/option allows the buyer to live in the home for a year and pay a non-refundable option for the right to purchase the property in the future at a price that’s negotiated today.
Finally, most home loans do not prohibit you from leasing your property and usually require you to pay off the loan upon the sale of the home.