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Lease to Own Agreements, sometimes called Lease with Option to Purchase Agreements or Lease to Purchase, are attractive options for renters who do not have the ability to purchase a home with a... Read More
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Making a Lease with Option to Purchase
Lease to Own Agreements, sometimes called Lease with Option to Purchase Agreements or Lease to Purchase, are attractive options for renters who do not have the ability to purchase a home with a typical mortgage. In some cases, the difficulty is due to less than perfect credit or the need for a large down payment. Lease to Own Agreements may also be a favorable option for landlords who are struggling to find renters or buyers for a specific property.
A Lease to Purchase can be a good option for renters who face obstacles to buying property, but in most situations, most of the advantages are on the seller's side. However, there are still some advantages for the potential home buyer.
Advantages for the seller:
In a down market, it can be a good opportunity to increase cash flow from leasing a property that was otherwise vacant or difficult to sell or rent. Most lease agreements are long-term, and the rental rate is often higher than average, so this can be an advantageous arrangement for property owners.
Advantages for the buyer:
It can give the buyer a couple of years to work on improving their credit and increasing their down payment leverage. If the Lease Option to Purchase Agreement includes the selling price of the house, the price is locked in even if the market improves.
Disadvantages for the seller:
You can't sell the house if the market improves and you are still within the terms of the lease agreement. If the contract includes the sales price, you cannot raise the price. If the buyer backs out and doesn't improve their credit, you are left with a vacant rental.
Disadvantages for the buyer:
If your credit score doesn't improve, you could lose the option fee and the years of extra rent paid. Alternatively, something may happen that is out of your control which could affect your ability to buy such as job loss or a serious illness.
In addition to these factors, there are other things that can go wrong with these lease-option agreements. To protect your interests, here are a few potential issues that you should be aware of:
Lease with Option to Purchase Agreements should be carefully reviewed before signing. They are expensive, long-term agreements, so it warrants diligent review. If everything goes well, renters can build their credit while the seller can benefit from two or three years of rental income during the lease period. At the end of the contract, in a best-case scenario, the seller sells a hard-to-sell property and the new owners get to enjoy the benefits of homeownership. If you are considering entering into a Lease-Option arrangement, it is important to talk to a lawyer.
Rocket Lawyer offers a free Lease with Option to Purchase Agreement to use if:
Simply answer a few questions and your document will be ready to use.
Rocket Lawyer offers a free Lease with Option to Purchase Agreement to use if:
Simply answer a few questions and your document will be ready to use.
These contracts include everything a regular lease does, plus the amount of the option fee, termination details, what happens to extra rent paid, and whether the house will have a set price or be sold at market value.
A Lease Option may give the potential buyer the right to buy the property based on the terms of the agreement. A Lease Purchase may require the buyer purchase the property based on the agreed-upon terms of the Lease-Purchase agreement.
The first step in leasing-to-own a home is determining whether your landlord is interested in the arrangement. Once the details have been discussed, the Lease with Option to Purchase Agreement can be used to set your lease-to-own purchase agreement in a signed document.
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