Lease Purchase - the smart way to buy a home

Rent-to-own offers significant advantages for both buyer and seller in today's housing market

Lease purchase, also known as or rent-to-own or lease option, is a very popular way of buying a house without having to meet the strict qualification criteria laid down by lenders.

In 2006 and 2007 virtually anyone with a pulse was able to qualify for a loan, including the 80/20 loans that have left so many people in trouble today.  But with the tightening of credit and qualification rules, and the impact of the unprecedented levels of foreclosures, people are once again going to find that conventional home ownership is out of their reach – at least temporarily.

Although there were undoubtedly people who took advantage of the lax borrowing criteria, not to mention the mortgage fraud prevalent in some areas, in the vast majority of cases of people who suffered a foreclosure, they were good people who got into a bad situation.  Their credit has been severely damaged (a foreclosure can be as much as a 250 point reduction) and their prospects of qualifying for a new home loan in the short term are slim to none.

So what are these people going to do?  One answer is obviously to rent a house while they pick up the pieces of their lives and try to get back to normal.  But that means paying the landlord’s mortgage rather than one of their own.  A better solution for many people is to rent with an option to buy.

In this scenario, the would-be home-owner rents a property and has a separate agreement providing them with the option to buy the home at a stated price at some time in the future.  For example, they may have an option to buy the house at $250,000 within 2 years of the signing of the agreement.  (The purchase price may be a little over current market value to cover potential appreciation during the period.)  For