Lease To Own Homes

By Bruce Roberts

Lease to Own real estate is often a great choice for people with poor credit, no down payment or for homeowners trying to sell their homes in a saturated market. Also known as "rent-to-own" or as a "lease-purchase" agreement, lease to own homes allow prospective homeowners to get into their house faster. To learn more about how lease to own real estate works, keep reading. 

The Down Payment or Options Consideration 

The down payment on a lease to own property is usually called an Options Consideration. The difference between an Options Consideration and a down payment is that the former doesn't buy any equity in the home. 

Should you decide to purchase the home in the future, your Options Consideration will be put toward the purchase price of the house. However, if you opt out or walk away from the sale, you will forfeit your Options Consideration. 

Typically, an Options Consideration payment is made up front and usually costs between 1 and 5 percent of the total purchase price of the house. 

The Rent or Mortgage Payments 

When living in a lease to own rental property, you will be making monthly rent payments. Typically, these will be higher than standard market rents. 

However, every rent payment you make will accumulate as a rent credit on the purchase price of your house. If you've entered into a mortgage payment arrangement, your rent will cover the mortgage payments plus an additional amount to put toward a down payment at the time of purchase. If you're in a strict lease to own contract, your rent will accumulate as a down payment and go completely toward the purchase price of the house. 

If you decide not to buy the house or are unable to secure financing, the rent credits will be forfeited and considered as rental payments and nothing more. Do not think you are building equity in the property until you have actually signed off on the purchase of the home. 

The Option to Buy 

Most lease to own real estate agreements have a one to three year window that allow you a specified amount of time to accrue rent credits, improve your credit and secure the financing necessary to purchase the home. 

If you don't buy within the specified option period, you will lose your rent credits and Options Consideration. So, before you put down a consideration payment worth 5 percent of a property's value, make sure you'll be able to buy the house within the specified option-to-buy period.