Lease to Purchase, Is It a Good Option?

Updated on July 27, 2011
H.F. asks from Nampa, ID
13 answers

I have been trying to sell my house for the last 4 months with no luck; I have started to look into renting it out as well. There is a woman who has come to talk to me and look at the house several times, but she doesn't want to buy the house outright or just rent it either, she wants to do a lease to purchase agreement. I really have no clue what that even means! My husband has done some research on it and his biggest fear is that she will never really purchase the house, that she just wants to rent it. But she assures me that she really wants the house and has no intention of leaving us high and dry with no new owners and no renter. I am torn, I want to believe her because I REALLY want to get my house sold or rented so I can move and join my husband who has been living away from our family for his new job. But I am afraid of being scammed, what can I do? Have any of you moms been in a similar situation before? What happened?

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answers from Portland on

Get with an experienced realtor. Me and my ex were looking into that in Yuma Arizona. What we had to do was get a verification that we would be approved for a mortgage eventually, then we could rent, and then in about 2-3 years we would go get approved for a mortgage and go into a mortgage. There are signed agreements for a lease to own option. We didn't end up doing it because I ended up deciding I didn't want to re-enlist (in the military), but we started to go into the process before the decision with the contractors.

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answers from Kansas City on

The problem with lease agreements is that most mortgages do not allow for them. You could get into trouble if your company does not allow any kind of assignment. Some do allow for it, but the person still needs to pass all the background checks and qualify for a loan.

You can do a lease only agreement with part of the price being put in an escrow account towards a down payment. You can have a time in the future that she has to have her own financing and then at that point the money saved goes towards the down payment. If you do that type of arrangement, she is not protected at all from your financial situation if you were to lose the house.

We bought into a lease purchase in the late 80's and the man was dishonest. He set up a corporation to hide marital assets. Of course we did not know that. He filed all the paperwork showing him as the mortgage holder and the house was put in our name. But all that was technically void when his X won the house in her divorce. Only her divorce attorney and the judge could not get our name off the title and she didn't have the money. We couldn't get our own financing to go to her because we found out then that the title was not clear. The people that held liens against the title were dead. There was no way to clear the title. There are rules that allow the deed to be clear eventually when it can not be cleared legally. But it took 20 YEARS! We were forced out of the house and the woman moved in herself. Only she could never fix the house because she didn't have the money and she couldn't get a mortgage to pay for the repairs needed because the house was in OUR name. It was a mess. Every time she didn't mow the grass we got a fine. We had to prove again and again why it wasn't really our home. Persistence paid off though. Eventually the title was cleared by the passage of time and she wanted us off the title. We made her pay us 15,000 dollars to pay us back for repairs we had done when we lived there.

There are a LOT of legal pit falls for both sides when you enter this kind of agreement. If she is leasing it to own does she have the right to do as she pleases? Can she paint? Can she have a bunch of animals? She can't get the insurance in her name yet.

Sorry for this being so long...

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answers from Dallas on

We just entered into a "lease with option to purchase". We are the ones leasing from someone else. We have the option to purchase the home anytime before our lease is up. A SMALL portion of our rent will go towards closing costs, should we decide to purchase. The sale price has already been agreed upon and we are having an inspection done on the home tomorrow. The couple whose home we are leasing were excited to get a renter who most likely will buy the home within the next year rather than "just a renter". Both sides were represented by an experienced realtor which is VERY important IMO.

I understand your apprehension. I was dreading the idea of renting out our current home, but luckily it sold as soon as it went on the market. Many people have had great success renting out their property. The people we will be renting from could not possibly ask for better tennants!!! :)

Good luck to you! It's hard being away from hubby all the time! :(

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answers from Tulsa on

My dad has done this with a number of his rental properties, although they are mortgage free. He charges a higher payment than typical rent for the area, along with a down payment. For the first two years the payments are considered rent. If they stay in the home after two years, the home is put in their name, the rent payments and down payment are applied to the purchase price, and he collects the payments as the mortgage holder, or they can get a traditional mortgage and pay him off. If they leave during the first two years, all money is forfeited. He has in his contract that they can paint, do minor remodeling, etc. You could write up the contract however you want. He has had good success with this. Only one of the homes he does this on (about 7) have actually gone past the two years, so he's been able to make some extra money on rent. You'll always have the chance that she will move out or cause damages, but you'd probably be able to find another renter, or could put it for sale at that point. Maybe the market would be better then. With you having a mortgage, not sure how that would work.

For insurance purposes, most major companies will put the home in her name with you as additional insureds (similar to a mortgage company) as long as there is legal paperwork drawn up showing this is a lease purchase, bond for deed, however it is titled in your state. If not, you would just insure it as a rental property and she would need to get coverage for her belongings. You can always call your insurance company first, just to make sure. If you need rental property coverage on it, you can write that in your contract as an extra expense for her.

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answers from Dallas on

Speak with your realtor about this. From what I understand during the process you can charge a slightly higher rent and set aside a percentage she is paying in rent as "equity:" to use toward the sale/down payment on the house. The unfortunate thing is that if at the end of the lease she does not wish to purchase the house she can still leave you without a tenant or buyer - she would just be out the equity she has built up.

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answers from Beaumont on

I'd be scared too. It would be worth the cost to consult a real estate lawyer...yes, they're out there. I'd make sure my tail was covered.

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answers from Salt Lake City on

It can be an excellent program but be careful my husband and I actually have 3 houses currently that are to rent to own they are candidates that their credit is bad but they are working on it j would do two things first she needs to have a large down payment 3k or higher this down payment goes toward purchasing the home in the fact that it doesn't purchase it is not refundable make sure you have good contracts check her credit and do debt to income check out my website. I stress on the contracts and it can be a profitable situation for you another option is my husband and I actually do the management of these type of situations and only take a small reserve of the profits you make good luck



answers from Oklahoma City on

When we did this the person who owned the home went and filed papers at the court house and put a lien against the home in case we decided to sell it outright. We were responsible for any homeowners insurance and repairs, it was our house and the person was just acting as our bank. It worked very well for us but my hubby got laid off and instead of doing all the work ourselves, selling it, paying it off, etc...we talked to him and he took the house back. It was a really good deal for him because we were paying all that money, plus the down payment, and a regular person would sell the house and then pay off the mortgage. He got to keep everything and resell it the same way again. He made lots of money on the deal.

If the payment wasn't made he could foreclose on us, just like a regular bank since the papers were filed in the courthouse. It is not like renting at all, you are the bank holding a loan and expecting payment.


answers from Chicago on

My understanding is that you would sign a 12 yr lease and then have a down payment to accept at the end of the lease. I was interested in doing this but not at a place to do it, I would talk to a realtor about the whole deal were I you.


answers from San Francisco on

Check Dave Ramsey's website. He's really good at that sort of thing.



answers from Pittsburgh on

I wouldn't do it. I'd reduce the price before doing a lease to purchase deal. And in this market, 4 months isn't that long....



answers from Denver on

You can include a time limit in your contract. Talk to a property lawyer-
You can lock her into renting for 12 months, and then you both retain the right to terminate the agreement or move forward with a purchase.



answers from Denver on

It is basically a rent to own situation. You let her live there and pay rent under contract that you pull money out of her rent each month to apply to the purchase. You will need to consider a lawyer drawing up papers for you to complete such a transaction. You also will probably have to have a company near by to monitor the property and make repairs until such time she can buy it.

If I were you, I would just drop my price to get rid of it to someone who can buy it outright so you no longer have to deal with it. Most people want to lease/rent to own because their credit cannot support an outright purchase or they do not have enough down money to pull it off. Just sounds painful to me.

If you are having trouble selling the house, consider having a stylist come in and stage your house for sale. They have a HIGH success rate if they know what they are doing. Once you have it styled, then have your realtor re-post the listing so it comes up first on a search.

Good luck to you!

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