Why Lease to Own May Get You Into a Home Faster

Why Lease to Own May Get You Into a Home Faster


Buying a lease to own home takes time.

From 2007 through 2011, home prices have dropped dramatically and are at levels not seen since the turn of the millennium. The huge run up in housing prices in the 2000s has resulted in a corresponding drop in home values, essentially canceling whatever gains homeowners have realized.

This is bad news for homeowners, but very good news for home buyers, especially first time buyers who may have felt shut out of the market for many years. However, one group of home buyers is still finding it difficult to jump in and that group consists of people with either not enough money for a down payment or those with poor or no credit.

The Path to Ownership

One option to help home buyers who want to jump into the market is to lease a home with an option to buy. So-called “lease to own” options enable prospective home owners to rent a home for one, two or three years and buy it later on. Lease to own isn’t for everyone as this arrangement is more costly than just renting, but it could provide a clear and certain path for homeownership for some people.

Let’s take a look at the essential questions of lease to own:

How does it work? — Lease to own is based on a legal agreement between the renter and landlord, one that goes beyond the standard renting relationship. Under this arrangement, a formal contract is required, one that stipulates how much money goes to cover rent expenses each month and how much money is set aside toward covering the down payment.

What about the price? — At the time of signing, a pre-determined price for the home is set. This means that if the agreement is for three years, then three years out the home will be sold for that amount if the lessee exercises his buy option. If you’re considering a lease to own arrangement, then you need to have an accurate value in mind for the home now as well as forecast its worth one, two or three years out. Work with a home appraiser to establish current and future values.

What if I don’t want the home? — One advantage of lease to own is that you get to “try before you buy,” which is a great way for deciding whether you really want the home or not. After several months or years of ownership, you’ll get a feel for the property, understand the challenges of home ownership and can repair or build your credit. If you don’t want the home, you don’t have to exercise your buy option and can leave the home when your lease is up. Keep this in mind: the extra money you paid for “rent” will not be returned to you. The homeowner gets the cash and can look for someone else to buy it.

Who takes care of the home? — As long as you are leasing the home, upkeep is the responsibility of the homeowner, not you. This means all maintenance, repairs, property taxes, association dues and related expenses are the landlord’s responsibility. If you choose to assume ownership, you’ll become the person responsible for making those payments. That means you should know how much it costs to keep the home in good condition and what monies the local taxing authority and homeowners association require.

Where can I find a lease to own home? — This is a good question and one with no clear-cut answer. Rarely will you find a home with that option published. Instead, prospective buyers without the means to buy a home should approach the seller to see if he would be interested in this arrangement. If so, then you have a potential arrangement in the works. Bring in a lawyer to represent your side and find out what it takes to craft a legal agreement. Ask real estate agents, too, if they know of any home where the owner may consent to this sort of arrangement. Any home languishing on the market and with the homeowner not needing to sell right away could be a potential lease to own property.

Take Your Time

Rushing into a rent to own agreement can prove costly, which means you need to understand your costs and be prepared to lose potentially thousands of dollars if you don’t exercise your option to buy. One way to minimize your risk is to arrange favorable terms where your monthly payments are about equal what you would pay if you rented without a buy option. This may be possible especially in a market where home prices are still dropping and demand for is low.

Finally, you still have to get qualified for a mortgage to close on a lease to own property. Talk with a financial advisor about your options and your current and future financial pictures.


Fox2Now.com: Contact 2: Lease to Own Scam; Bonita Cornute; June 14, 2011

Trulia.com: Rent to Own Homes. Learn how to lease purchase a home. Tips, secret and advice; Seth Godzyk; June 15, 2010



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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".