How to lease a home with an option to purchase

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Have you ever thought about how to lease a home with an option to purchase? This might be a solid alternative path toward home ownership if you aren’t having any luck getting approved by mortgage lenders.

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What is a lease with an option to purchase?

In simple terms, when you lease a home with an option to purchase, a contract is written up that states that a certain percentage of your monthly rental payment will be set aside as a down payment for future purchase of the home. The contract will also include a tentative date when legal ownership of the home is transferred from the seller to you, the buyer.

There are three main reasons why it may be a good idea for some people such as first time home buyers to take advantage of a lease-to-own property contract.

Credit report issues

If you’re having trouble getting mortgage loan approval through traditional lenders due to credit issues, you may find a buyer who is willing to sign a lease-to-own agreement for their house so that you can begin the road to home ownership immediately. This will allow you to rent the home as you work on credit repair and go about restoring your credit so that you can eventually gain mortgage loan approval and purchase the home outright.

Lack of a down payment

Mortgage lenders won’t approve a home mortgage loan without proper proof of cash on hand for the down payment amount and the amount of closing costs. If you are eager to get into a home but don’t yet have the cash needed for a traditional purchase, a lease-to-own situation can help you to save money for the down payment each month, yet live in the home right away.

A test run on home ownership

Sometimes the thought of home ownership can be a bit overwhelming. A lease-to-own program can help potential buyers do a home ownership test run to see if they like the home, the neighborhood and the responsibilities of home ownership in general. If you’re using a lease-to-own option for this purpose, be sure to let the seller know in advance so that there’s no surprises when the lease ends if you choose not to purchase the home.

How to make the most of a lease-to-own situation

As with any contract, a lease-to-own situation can go wrong without proper planning and contract negotiations. Here are some things to keep in mind if you’re considering a lease-to-own contract on a property.

Expect your rent to be inflated

Mortgage lenders often won’t accept a lease-to-own down payment unless the rent you’ve been paying on the home is above the typical rent for that type of a home and in that area. Lease-to-own applicants must be able to prove that the amount they’ve been gaining in savings through the lease is truly part of an intended savings effort and not simply because of a reduction in monthly rent.

Be sure that a legal contract is signed

It’s wise to be sure that every detail of the lease-to-own plan is in writing in the contract so that expectations are clear with both parties. Payment arrangements; language regarding who is responsible for utility payments during the time of the lease; and language clarifying who is responsible for repairs and repair costs is vitally important to all lease-to-own contracts. Don’t accept handshake deals for any part of the agreement. Get everything in writing and be sure that all parties have signed the agreement with a notary or lawyer present.


It’s also important to remember that the goal of a lease-to-own program is to give you time to clean up your credit, save up for a down payment or rectify whatever situation is hindering you from being approved for a traditional home loan. It’s expected that you as the lessee will take the time specified in the lease-to-own agreement to make sure you become an attractive applicant to mortgage lenders.

Understand the consequences of a broken deal

The contract should also include terms regarding what happens if one or both parties decide to back out of the lease-to-own agreement. Typically, when a buyer backs out of a lease-to-own deal, all down payment funds become property of the seller. In order to protect the savings you accumulate during a lease-to-own situation, it’s important to be sure that the contract contains language to help protect both the seller and the buyer in case the contract needs to be broken.

Be prepared to handle any expected or unexpected termination of the contract and know your rights as a lessee according to the laws of your state. If you’re having trouble understanding what’s expected of you or what to expect from the landlord in a lease-to-own situation, consider hiring a licensed realtor or real estate lawyer to represent you in the deal.


Lease-to-own deals have many attractive qualities that can help people who can’t get approved for a traditional mortgage work to become homeowners while being able to live in the house that they want to purchase as they improve their financial situation.

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