Rent-to-Own Vs. Lease Purchase

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If you're in the market for a home with a rent-to-own or lease purchase option, your real estate agent might use the two terms interchangeably. While there are similarities, these two agreements are not exactly the same, and it's important to understand the difference before you sign any contracts. Always consult a real estate attorney before making such a commitment. These agreements cannot be put together by your real estate agent.

Rent-to-own

A rent-to-own agreement starts as a tenancy, and doesn't differ much from a standard rental lease. It includes the monthly rent amount and the length of the lease. It also includes a lease option, which allows the tenant to buy the property within an agreed upon time period at a specific price. Although the tenant generally pays the landlord a certain, nonrefundable amount of money up front for the option, he is not obligated to buy the property at the end of the rental lease. If he does decide to make the purchase, the option money usually is part of the down payment.

Tip

  • Remember that the landlord still owns the dwelling, even if you have every intention of purchasing it. If you violate your lease agreement, your landlord could have you evicted. On the plus side, the home is no longer on the market while the rent-to-own lease in effect.

Lease Purchase Agreement

A lease purchase agreement differs in one major way from the lease option agreement. Instead of having the option to purchase the home, you now are contractually obligated to buy the property at the end of the specified time period. In many states, the lease purchase agreement is considered on the same terms as a land installment contract.

Higher Rents

In both lease option and lease purchase agreements, the tenant pays a higher market rent, with a portion of each month's rent going into an escrow account set up by the landlord toward the home's down purchase.

Real Estate Attorney

Your real estate attorney protects your interests, whether you are the seller or the renter and potential buyer. She'll ensure that the agreement clarifies who is responsible for performing any maintenance, repairs or improvements on the property, and who is responsible for paying the taxes and insurance. Discuss your plans with the attorney, and she can explain the best way to accomplish your goals, as well as possible pitfalls. For example, she'll explain what happens should you break the lease or find yourself unable to qualify for a mortgage if the seller isn't financing the house. Your attorney will draw up the proper documents, so you shouldn't find yourself facing unexpected tax consequences.

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