by Thomas Baskin

Created on: October 27, 2010

Everybody would someday like to have a home that they can call their own but not everyone can afford to go out and purchase a home for whatever reason. A way to get the desired home is to do a rent to own program also known as a lease option purchase. There are many advantages to doing a lease option purchase especially if you don’t have the money saved up to put down on a mortgage or you have less than ideal credit.

 A lease option program works like this. You lease a home with an option to purchase the home at the end of a designated period. You, the buyer pay a small percentage fee at the beginning of the program that is later credited to the purchase price of the home. You pay rent as normal but you also pay a rent premium that goes to the purchase price of the home. At the end of the agreement you now have enough money to put down on the purchase of that house. Let’s look at some of the advantages of a lease option purchase.

The fee at the beginning of the program is anywhere from 1 to 5% of the purchase price of the home instead of the 10 to 20% on a traditional loan which means you can negotiate the rent that you pay each month by putting more money down at the beginning of the program. Remember that the rent premium is part of your monthly rent payment.

Your rent premium is determined by the length of your lease plus the total amount you want to save to go towards closing. For example; you want to save $10,000.00 to go towards closing. Over 24 months you need to pay a rent premium of $416.00. Over 36 moths you need to pay a rent premium of $277.00. This method allows you to “save” for the big down payment.

Although you have a vested interest in the home, you are not the owner and therefore not responsible for the insurance on the house. The owner is still responsible for taking care of insurance and anything else that is agreed to in the contract.

No credit involved in most lease option purchases.  The whole idea behind a lease option purchase is to build up your credit score, and save money for the down payment when you are ready to finance the house yourself.

This really is a good deal for people with credit issues and people who don’t have the huge lump sum of money that required in a traditional mortgage loan. Before you get into this type of loan make sure to talk to someone in the real estate business about this type of loan. Be aware of any problems that can go wrong and above all else, do your own research.

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