Rent To Own - What Is A Lease Option

A rent to own is a type of contract used in residential real estate that is typically held between two parties. One, the tenant (who is also called the lessee), who will occupy a house or an apartment, and the landlord (lessor), who owns the homes for sale. A rent to own house is one of the many ways in which you can buy a house even with bad or no credit. It is addressed differently as lease option, lease purchase, lease to purchase, rent with option to buy and rent to own.

In the duration of a lease option, the tenant will pay credit to the landlord towards the value of the rental to own, and is allowed to occupy the house in exchange for the credit. When the contract ends, the tenant has an option to make an outright purchase of the apartment. Tenants typically obtain the money for this, by way of mortgage.

In this rent to own option, the tenant pays to the landlord, over and above the usual market rent. Excess credit may also be levied to the eventual purchase of the apartment, or towards the down payment in getting a mortgage. This is one of the lease options that work as an automatic savings plan for the tenant.

Things To Know

There are a few differences as far as rent to own and lease option agreements are concerned. It is essential for you to clarify these as these terms are used interchangeably in the rent to own industry. In case of a rent to own option, the buyer will make an agreement with the owner that some or all of the rent money goes toward the down payment of the apartment.

This will happen at a fixed date 2 to 5 years in future. The person paying the rent will then purchase the apartment by using the money that was set apart as down payment. If the tenant does not purchase the rent to own apartment at the end of the lease, then all the money paid by the tenant, in addition to the market rent will be retained by the landlord.

Advantages

The money put in at the beginning is not much in a rent to own option, apart from what is needed for a rental home. This is a nice way to get into an apartment with little or no down payment.

The rent to own option carries lesser risk to a landlord than a mortgage would for a lender. Its easier and cheaper to get the tenants to evict, rather than a foreclosure on a mortgaged property.

Another advantage in a rent to own situation is that the money you end up paying over and above the rent for possession of the house is relatively lower than taking out a loan for it.

As you can see, there are many advantages to a rent to own option, hence it is definitely a sensible one to go in for.