The Difference Between Rent to Own, Lease Option and Lease Purchase Agreements

The Colorado Springs real estate market is seeing soemwhat of a "shift" in how homes are selling. Some are selling faster, some slower, some for more money and some for less. One of the more popular questions that we hear nowadays is:

What is the difference between a Rent to Own, Lease Option and Lease Purchase Agreements?

This is a lot of confusing terminology.

Colorado Springs Real Estate Connection - Rent to Own Lease Option Lease Purchase

Here is a very simple way to explain the differences.

Rent to Own: This is a loose agreement between a home owner/landlord and the tenant/buyer. Basically, the landlord agrees that a portion of the monthly payment goes toward the purchase of the property. Usually, this goes on for an indefinite amount of time and the tenant/buyer usually has no recourse to recoup any money if they (the tenant) decides not to live there long enough to pay off the house.

Lease Option: This is a much better option than rent to own, as it is more contractually binding. For X dollars (option money), you (the buyer) have the OPTION to purchase the property for X purchase price on or before X date. Meaning, if you are looking to BUY a home as a lease option, you would give the owner an amount of money (usually several thousand dollars) up front, which, inturn you would lease the property for a set amount of time and then have the OPTION to purchase that property at a set date for a set price.

Sometimes an owner will apply part of the monthly lease payment to the down payment, but this is not common.

Lease Purchase: This is the BEST agreement for both buyers and sellers. It is a real, live, regular contract to buy and sell a home. It is just extended out for usually about a year, where the buyer leases the property from the owner until the closing date. The purchase price, terms and close date are determined right up front.

Many people confuse these terms, and that can be a BIG HUGE MESS.

If you are really interested in buying a house or selling your house using one of these contracts, make sure you contact a real estate agent, lender and title company and/or attorney to draft it up for you in a way that makes sure that YOU are protected to the nth degree.