A lease option is a combination rental and sales agreement. A tenant signs a lease with an 'option' to purchase the property s(he) is renting for a specified price and within a specified time period. Usually the renter will 'buy' the option with an upfront down payment. If the renter chooses to exercise the option at the end of the term, the option money down payment is applied toward the purchase of the home, otherwise the seller keeps the option money and finds a new tenant. Additionally, in most lease-option situations, a portion of the rent being collected is applied to a future down payment on the home.
Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs; and will be most popular during a slower real estate market when the seller finds it difficult to sell the home in the regular manner.
Like the lease-option, the lease-purchase agreement is an alternative seller financing plan that combines a rental agreement and purchase contract. The main difference is that a lease-purchase obligates the tenant to purchase the property at the end of the lease. (With a lease-option the tenant has the right, but not the obligation, to exercise the option to purchase the property. See above.)
As with the lease-option, the tenant usually pays an above-market rent and receives a monthly rent credit toward the down payment at the end of the term, at which time the seller is obligated to sell the property on the terms specified in the lease-purchase agreement.
Most states, including Ohio, do not recognize the lease-purchase as distinct from a land installment contract and therefore, in case of dispute, would defer to the statutes governing land installment contracts.
See Also: Alternative Forms of Financing.
A lease option is an arrangement with you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent would be applied toward the purchase if the option is exercised. This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application.
Read any lease-option arrangement carefully for details on transferring the option and other important concerns. If you do not expect your financial condition at the end of the lease-option term to have improved sufficiently to allow you to obtain conventional financing - than a lease-option probably is not the right path to take.