Lease-Option (aka “Rent-To-Own”)

Do you have at least 20% of the purchase price as a down payment on your dream home? Is your credit score above 700? Do you have a low number of inquires on your credit report during the past two years? Of-course you have zero balances on your credit cards – right? Or do you otherwise have what would be considered a good debt to income ratio? For that matter, how is your income and employment history? No recent job changes – right?

When it comes to buying a house, all of these considerations (and more) come into play for qualifying to get a mortgage. And if you answered “NO” to even one of these questions, or some others just like them, your chances of getting financing at this time are significantly reduced… In which case a “Lease-Option” or a Lease with an Option to Buy (aka “Rent-To-Own”) may be the perfect path to get your dream home NOW, despite needing some additional time and effort to be able to qualify for mortgage financing LATER.

Lease-Option (aka “Rent-To-Own”) is a deferred purchase method, where you start out as a Renter with a Lease for a specific term (normally 1 To 3 years); at the end of which you then have the Option to purchase and become a Buyer (Owner) at a predetermined price.

Lease-Option has both pros and cons (see below) for both sides (Buyer and Seller), but it is an ideal purchase method for Buyers when they find a desired home at a time when they cannot yet qualify for a mortgage (due to any number of reasons) to purchase in the typical manner.

Rent-To-Own via a Lease-Option therefore solves problems for both the Renter / Buyer and Seller… Obviously for the Buyer the primary benefit is getting a desired home NOW, with a locked in price at which they can buy LATER. And the Seller benefits by getting a short-term tenant that actually cares about the home and treats it accordingly – because they will eventually buy it. This creates a “Win / Win” scenario…

As with most Real Estate transactions, a Lease-Option deal starts with negotiation… To be determined are: (1) Rent; (2) Non-Refundable Deposit; and (3) Purchase Price. The amount of “Rent” is normally the going market rate for the home type, size, location, etc… “Non-Refundable Deposit” is a negotiable one-time upfront payment to establish the agreement, that is applied to the deposit amount at purchase (or forfeited if the purchase never takes place). And “Purchase Price” is the negotiable amount that will be paid for the house, to which the “Non-Refundable Deposit” will be applied as a credit at the time of purchase.

Here’s a common Lease-Option / Rent-To-Own example: If the house were worth $150,000, and if typical market rate rent would be $1,500, in addition to paying this amount monthly, someone who wants this home on a Lease-Option to Rent-To-Own might also put down a $5,000 deposit. And at any point during the 1 to 3 year term of the Lease, they can proceed to purchase the home outright for the remaining balance due of $145,000.