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Rent to Own (also called lease option, land contract, contract for deed, lease purchase to buy,
seller financing) is usually a written (not oral) arrangement between a prospective tenant/buyer and
an owner or agent of the owner of property. In a rent to own deal a tenant/buyer essentially
is given the 'right or option' to buy OR with seller financing (the best way) whereby the owner
creates the loan for the buyer-in other words the seller is acting as the bank!
A GUARANTEED right or option to buy the property gives the tenant/buyer specific rights as described in a
document called 'Lease with Option to Purchase'
The scope of the Home Owner/Seller can:
- Finance the tenant/buyer (seller financing)
- Establish an agreed upon price to sell to the tenant in the future.
- Apply all or a portion of the lease purchase money (lease purchase credits) towards the purchase or
- Create a land contract (contract for deed)
- Give an option to buy the property
Benefits (pros) of lease purchase Housing
There are several benefits of a lease purchase home program:
- Rent to Own allows you to move into your own house with a relatively small down payment
- If you have credit problems you can still buy a home with bad credit.
- Once you are in the house the landlord may work with while you make steps to improve your credit, to
eliminate bad debts, and to save for a sufficient down payment. - You can treat a rent to own purchase like your own home and decorate or remodel.
- A rent to own home allows you the opportunity to 'give it a try' before you make a long term decision.
Disadvantages (cons) of Rent to Own Home Programs
- Tenant/Buyer may not have actual title to the real estate. Title determines ownership.
- Most rent to own home purchase agreements are for a short period of less than 5 years, at which point
tenant/buyer/optioner must obtain a mortgage loan. - If a mortgage cannot be obtained by the due date there is great risk of losing the home, any rent to own
credits, plus any down payment or option money. - The seller can sell the house even while you are living in it.
- Since the house is not in your name the owner can borrow against it.
- The owner may have legal problems that can encumber the house with liens
How Do You 'Rent to Own' a House?
The tenant/buyer and owner agree on terms (price, payment amount, rto credits, responsibilities of repairs) and
sign an agreement. That agreement can be a Lease Agreement with an addendum 'Option To Purchase'. If
seller financing is involved the parties may sign a 'Land Contract', also called a contract for deed. The best way
to buy is to get the deed. It is the most difficult but gives the buyer the best protection. Most real estate
investors would not buy any other way.
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| Realty Rent to Own now with the 6-Step Program to Ownership |
Rent to Own Fraud Protection is Key
It is strongly recommended that tenants entering into a lease purchase or lease
purchase to own agreement follow sound advice, such as consult legal counsel,
perform a background check on the owner as it is quite common for strangers to
fraudulently sell houses they don't own (yes it does happen). At the minimum a buyer
should order a title report and a tax and legal report. All real estate agreements carry
significant legal ramifications and appropriate legal representation is strongly
recommended before signing anything.
It is strongly recommended that tenants entering into a lease purchase or lease
purchase to own agreement follow sound advice, such as consult legal counsel,
perform a background check on the owner as it is quite common for strangers to
fraudulently sell houses they don't own (yes it does happen). At the minimum a buyer
should order a title report and a tax and legal report. All real estate agreements carry
significant legal ramifications and appropriate legal representation is strongly
recommended before signing anything.
