Lease to Own
(AKA Lease Option or Rent to Buy/Sell or Owner Financing)
It is a way to purchase a home with - low down payment, no pre-qualifying, and easy terms.
What is Lease to Own?
Much like leasing a car, the home buyer leases their home for a period of time instead of purchasing the home out right. Although the buyer has an option to purchase the home at a later date, the price is set at the beginning of the lease so the home price is locked in now —during this buyer’s market.
The buyer can choose not to purchase the home but the homeowner must sell the house at the agreed upon price unless the buyer chooses to renegotiate.
Specifically, it is a 3 part contractual arrangement between a tenant buyer and homeowner seller which includes:
1) Lease – the period of time when the tenant buyer rents the home
2) Option – an agreement that allows the tenant-buyer to buy the home, if they choose, at a pre-determined price at any time during the lease and option time period. A down payment (AKA option fee) secures the option for the tenant buyer, including setting the price and keeping the home owner from selling the home to anyone else.
3) Sales contract — an agreement that captures the details of the home purchase when the tenant buyer exercises their option to buy
How does it work?
1) The tenant buyer and homeowner seller agree to sales price, option fee amount (AKA down payment), monthly payment and option length of time.
2) The tenant buyer and homeowner seller sign a lease, an option agreement and sales contract
3) The option fee is paid by the tenant buyer which secures the option
- This prevents the homeowner seller from selling the home to anyone else and locks in the sales price
- The option fee is deducted from the sales price at the time of purchase
- The buyer tenant can purchase the home (exercise their option) at any time during the lease period
- The option fee is not returned to the tenant buyer if they choose not to exercise their option or default on the lease agreement
4) The tenant buyer works with a lender to clean up any loan prequalification issues.
- When make 12 months of payments, the lender will treat the payments like the tenant buyer owns the home and can qualify for a refinance loan instead of first time buyer