Lease to own properties are the same thing as lease option to purchase or rent to own. The premise behind this creative financing practice is to allow those who cannot purchase a home now, have a way to live in a home until they can qualify. The purchaser pays a rental amount and an extra amount which is used towards the down payment.
Lease to own homes
Lease to own homes are available to buyers by sellers wanting to sell their homes creatively. Usually, these homes are ones where the seller has had difficulty to sell in the past. The price of these homes tends to be higher than a typical good deal property in the neighborhood.
With there being so many foreclosure properties on the market and there being competitive selling measures, a seller may choose to handle the financing himself. A lease option property must be refinanced within the terms set on the contract, usually within one to seven years.
The difference between this type of contract and seller financing is that the home must be refinanced or the buyer will lose their option money and all money paid monthly.
Rent to own properties flaws
The main flaws with this type of contract are that the property may not appraise at the end of the option period. Even if you get the property appraised today, in five to seven years the property may not appraise and thus cause you to lose all your option money.
Rent to own properties can be protected by opening escrow and placing contingencies on the property. Many buyers however will do a lease option with a simple shake of hands and a rental agreement. Buyers are so desperate to take a rent to buy home that they will neglect the legalities.
It is always best to have yourself represented by an attorney or agent who can review the contract before signing.
Lease option agreement
Always open escrow when doing any contract to purchase. Make sure that you cover yourself by requiring the seller to agree to your terms such as:
- Seller not to place any additional liens on the property.
- Seller to pay all taxes and insurance.
- Buyer to have the rights to make additions to the property, without seller approval.
- Seller to pay for property appraisal.
- Seller agrees to reduce the price to the appraisal price at the time of refinance.
The lease option agreement is meant to protect all parties and you should write down everything that is agreed upon. Never trust the seller to make good on his promises. If you ever have to go to court, the contract is what is binding. Make sure to keep good records of all deposits.
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