Why the Names Cause Problems
Advertisements say “RENT TO OWN!” But the actual contract might be a lease-option, a lease-purchase, an installment contract, or a seller-financed arrangement. Those are not identical.
Lease Option
Typically: rent now, option to buy later. If the buyer does not exercise, the option may expire.
Lease Purchase
A lease-purchase can create contractual obligations for the parties to complete the future purchase. That creates much more risk if buyer cannot obtain financing later.
Rent Credit
Some agreements credit part of rent toward the future purchase. Others do not. Never assume.
Example
Monthly rent: $2,600. Advertised: “$500 monthly rent credit.”
Over 24 months, the potential credit is $12,000.
But the contract may say the credit applies only if every payment is timely, the option is exercised, and the buyer completes closing. Missing one requirement could potentially affect the credit.
Read it.
Why Buyers Use These Arrangements
Potentially because they need time to improve credit, need time to save, want to lock in a property, are relocating, or have self-employed income that needs more seasoning.
Why Sellers Use Them
Potentially to increase tenant commitment, line up a future buyer, collect option consideration, delay the sale, or work through a difficult market.
Biggest Buyer Question
WHAT HAPPENS IF I CANNOT GET A MORTGAGE WHEN THE OPTION/PURCHASE DATE ARRIVES?
Do not sign until you understand that answer.
