Lease to Own

I get lots of calls about “lease to own,”  “lease to purchase” and “lease options” (all of which are the same things) and I thought I’d briefly break it down for those who don’t know how it works.

Someone that may not be able to obtain financing immediately may consider a lease to purchase property.  How it works is this…Every month part of the monthly rent (the amount negotiated between the lessee and the landord) is deposited into an escrow account. That money will essentially be used as a down payment when the lessee obtains financing.

“When does someone have to get financed to actually purchase the property?”

Great question! The laws in Texas are constantly revised so it’s important to do your research.  As of now lease to purchase contract can be a maximum of 6-months.  This means that you have to obtain financing or you may risk losing the money that has been deposited into the escrow account depending on the terms of the agreement.  Remember that all of the details of the agreement are negotiated beforehand.

The Pros
One of the advantages of lease options for a purchaser, is that you secure today’s price but actually purchase the home in the future.  Another advantage for the purchaser is the fact that the process is like an automatic savings program.

From a seller’s standpoint, an advantage is that you “secure” a buyer.  A seller can also negotiate the deal so that if the lessee doesn’t go through with the purchase, they may receive part of the money that has been saved and thus cut their losses and place it back on the market again.

The Cons
A disadvantage from a buyer’s standpoint is that if for some reason you can’t get financed in time, you make risk losing of the money that you’ve put away for the down payment (again it depends on the details of the contract).

From a seller’s standpoint one potential disadvantage would be that the sales price that you agree upon would be based on today’s market and there’s a potential that prices could go up and you could sell your home for more money in the future.  Although prices nor values seem to be on the increase, there will one day and that would be something to consider in the future.

Overall there’s a lot to lease options and this is just some basic information.  Feel free to contact me with any questions or post your questions to the blog!