Understanding Lease Purchase Option

Due to unique circumstances, many times a Buyer will seek out properties that are available first as a Rental, then to be Purchased. In these cases a process known as Lease Purchase Option, or simply Rent-To-Own can be an attractive option for both the Buyer and Seller.

Why would a prospective buyer choose Rent-to-Own? The reasons are unlimited, but may include:

• a move to a new area due to job changes, which preclude the Buyer from obtaining a Mortgage Loan for one or two years
• a recent divorce caused credit issues, which need time to be cleaned up or corrected or to age so they no longer have a meaningful impact on the credit score
• Not enough money down; a Rent-To-Own helps the buyer to “save” by providing an Equity Credit as part of each monthly rental payment, thus creating a “savings account” strictly for use in purchasing the home
• and other unique buyer circumstances

How Does it Work

The simplest way to Understand the Rent-to-Own process is by viewing it as three separate but related parts of a whole process:

1. The Lease - similar to any other Rental situation, a Lease governs the agreement between the homeowner and the Lessee regarding the rules, amount of monthly Lease payment, the deposit required etc.
2. The Option - in order to reserve the right to buy the home, the Prospective Buyer pays for the privilege of “holding” the home so that no other buyers can take it while they get the time necessary to be able to purchase the home with a Mortgage loan. The option usually includes language that states that a certain amount of the monthly Lease payment above will be credited back to the Buyer if and when they purchase the home.
   
   If the prospective buyer does not purchase the home by the deadline in the Option, then the Seller keeps the Option money as compensation for having reserved the home and not allowed other Buyers to purchase.
3. The Purchase - once the buyer elects to exercise their option, a closing takes place in the standard manner of transferring ownership.

Pros and Cons

An old saying goes:

If anyone ever tells you that something is good, good, good, good, good - then you should run, run, run, run!

Lease Purchase is not always the best choice. But many times it can lead to a successful win-win for the Buyer and Seller.

Sellers may want to obtain a desirable price, or delay payment of taxes, or generate the cash flow from rent for a period of time and thus may select to offer the home with Lease Purchase Option.

Buyers can build equity and obtain the rights to a desired home that may not last if they wait. It allows them build confidence that this is the right home for them.

How the Lease Purchase is structured can make a large difference to all involved. The BestFSBO.com Team specialists can answer all your questions at no cost, to help determine if this is a good option for you.