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Question
How exactly does Lease to Own work on a home?
I'm selling my home, but never considered leasing it out. I know there's a contract, and it's like renting, but with the intent of the tenants to buy, but when? Are those details stated on the contract (i'm sure they are)? How long do they normally lease? And when buying the home, do the buyers pay for what's left on the mortgage? Any help is greatly appreciated.
5 years ago - 5 answersBest Answer
A Lease with Option to Buy is what you want. The tenant puts down a downpayment. This downpayment is called "option consideration." At the end of the lease period, the tenant has the option to buy the property. If they exercise the option to buy, you must sell it to them. You dont have a choice. (the contract usually states upfront what the selling price of the property will be, and you want to make sure that if you live in an area where property values are going up, that you add a few percent to the current market value of the house so you benefit from the appreciation). If the tenant does not exercise their option to buy, they walk away. With regard to the downpayment....if they exercise the option to buy, the downpayment will go toward the purchase price of the house. If they dont exercise the otion, they lose their downpayment.
All of these issues must be put in writing. There are many ways to structure a lease/option contract. You can have a certain percentage of the monthly payment go toward the purchase price, or NONE of it. That's all up to what the two parties agree on. A normal lease/option is 1-2 years.
They do not pay off your mortgage. You do. At the end of the lease period, they will be responsible for getting their own financing through a bank. When the property gets sold to them, their bank will pay off your mortgage, and you get whatever is left after closing costs and expenses.
Hope that helps
Other Answers
okay lease to own can be a very profitable thing. You draw up a contract stating how long the lease period would be until they bought out the house with a proper mortage. They give you a down payment for the house and then a percent of their monthly rent goes off the purchase price of the house about 10 so if they paid 2000 a month you would take 200 a month off the purchase price
by sarah W - 5 years agoThe way that I have done it, is that I establish a sale price. Then you figure out the terms of the hypothetical mortgage. I also include the clauses in case they decide after a year or two that they don't want it anymore. That way, they can walk away, you keep the principal, and the house.
The title never transfers until the time that the entire house is paid off. Hope this helps.
That's a VERY open-ended question as there is no specific guidline as to how this works.
Generally what happens is you enter into a lease/contract with the owner. A percentage of your rent is applied to a down-payment to be deducted from the PRE-NEGOTIATED purchase price of the home. Within an agreed apon time frame you either purchase the house (less the deducted portion of the rent) re-negotiate the lease or move.
BEWARE: If you don't but the house you are NOT entitled to the money back that was intended to reduce the purchase price. - Lenders do NOT consider the portion of rent used to reduce the purchase price as a down-payment. If the agreed upon price is say, $200K and you get the house for $180K the lender considers the full purchase price of the home to be $180K
In some states, there is less legal protection for the landlord with the "rent-to-own" and "lease-to-own" situations.
A better choice for a home seller is the Contract for Deed (CD). Most states have well established laws that deal with CDs. But the laws may not adequately cover the newer "rent-to-own" and "lease-to-own" situations yet.
Basically, in a Contract for Deed, the seller decides on the down payment, monthly payment, interest rate, length of contract, and balloon payment. The buyer pays a downpayment, a monthly amount for a specific period of time (usually two to five years), and then a balloon payment at the end.
The idea is that a buyer will have time to repair their credit or establish good credit within the specified term of the contract and then qualify for a mortgage to pay the final balloon payment.
Generally, the Contract for Deed provides better protection for the seller if the buyer misses payments or damages the property.
Some of the "rent-to-own" or "lease-to-own" scenarios provide less protection for the "landlord" and make it harder to evict the "tenant".
This is because there is a legal difference between a "tenant" and a "buyer". There is also a legal difference between a "landlord" and a "seller". In other words, the "lease-to-own" and "rent-to-own" situations can become very clouded by tenant / landlord laws.
I think the most important questions is:
Do you want to help someone buy your home?
OR
Do you want to own rental property?
If you want to help someone buy your home, choose a Contract for Deed. If you want to own rental property, then a "lease-to-own" or "rent-to-own" option might be OK depending on your long-term goals.
Find a REALTOR® who works with CDs to help you.
