As I drive down the street these days, I can’t help but notice the increase in “RENT TO OWN” signs screaming at me from their neon pink and fluorescent yellow platforms.

With credit getting more difficult to get come by for many borrowers, many sellers are electing to go this route in order to entice buyers into purchasing their homes.

Typically a lease option is just that…a rental lease on a property such as a home or a condo with the option to purchase the home at an agreed upon price by a certain date. The buyer and seller are agreeing to have them buy the home, just not quite yet.

There are upsides for buyers and sellers alike with lease options.

  • The buyer can take possession of the house as soon as the lease is executed. The seller is able to cover their mortgage payments as a result.
  • The buyer and seller agree on a purchase price for the home at the time the lease is executed. The seller knows they have a future sale of the home, and the buyer knows they can purchase the home at a certain price in the future.
  • The seller agrees not to market the home while the buyer has the option to purchase it. This can be great for a motivated buyer who needs to clean up their credit prior to purchasing a home. You can live in the home you want while you clean things up.

There are downsides for buyers and sellers with lease options as well.

For buyers: They will put option money down. This is a deposit that is
held in order to ensure that you buy the house. If you do the money does
towards the purchase of the home, if not, then the seller gets to KEEP it.
Think of it as a non-refundable security deposit. Sometimes it is paid upfront,
but typically the money is just added to the monthly rent.

For sellers: The buyers may not get their credit cleaned up in order to
purchase the house. The market may be better or worse at the time the
lease is ended.

Buyers in a lease option fall under Landlord/Tenant Laws. Make sure you
are aware of their and your rights under the law.

A lease option can be a good idea for buyers and sellers but both parties really need to take a look at the situation and think through it carefully. Many sellers, desperate to cover mortgage payments, may make a really poor choice with a lease option.

(c) Copyright, 2008. Melina Tomson, All Rights Reserved. DO NOT COPY this without express written permission from the author.