Lease-Option Purchases

Quick Takeaways

A lease option is a real estate agreement that allows a tenant to rent a property with the option to purchase it after a specific period
In a lease option, the tenant pays an upfront fee, known as the option fee, which gives them the right to purchase the property at a later date.
A lease option provides the opportunity to lock in a future purchase price.

Source: Lease Option: Definition, How It Works, Pros and Cons (Chase, Apr. 10, 2024)

A lease-purchase option, also known as a rent-to-own agreement, is a contractual arrangement where a tenant leases a property with the option to purchase it after a specified period. This option typically involves the tenant paying an upfront option fee and agreeing to make regular lease payments, a portion of which may be credited toward the down payment or purchase price. This arrangement can benefit prospective buyers who may need time to save for a down payment, improve their credit, or test the suitability of the property and neighborhood. However, it is crucial for both parties to clearly outline terms and conditions to avoid misunderstandings and ensure a smooth transaction process.

See References for more information.

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.

Lease to Own: The Basics

Rent-To-Own Homes: What They Are and How They Work (The Mortgage Reports, Oct. 15, 2024)

A lease option, by contrast, gives the tenant the option to buy the property at the end of the lease term without being obligated or required to do so. Unlike lease-purchase agreements, these contracts typically don’t apply any portion of the monthly rent toward a down payment, as the tenant may choose not to proceed with the purchase.

How Does Rent-to-Own Work? (NerdWallet, Nov. 20, 2024)

Rent-to-own, otherwise known as a lease purchase, is a legal contract between a buyer and a seller to purchase a house with a future closing date, usually one to three years after the contract is signed.
This is different from a lease option, in which a buyer is given the choice to buy the place they were renting — before it goes on the market — but are under no contractual obligation to do so.

Lease Option: Definition, How It Works, Pros and Cons (Chase, Apr. 10, 2024)

Rent-to-own agreements usually come in two forms: lease option and lease purchase. A lease option gives the tenant a choice to buy the home later, while a lease-purchase obliges them to do so. A lease option is typically more flexible since the tenant isn't obligated to buy the property and may potentially opt out at the end of their lease. By contrast, a lease purchase contract is more rigid and usually does not give a choice to walk away from a deal.

Case Studies & Examples

WELCOME HOME: New Collier County Program Aims to Help Renters Become Homeowners (FOX4, Jan. 30, 2025)

The program rents homes to workforce members at affordable rates for three years. During that time, their rent payments are adjusted based on income," Smith said.
A portion of each tenant’s rent will go into a down payment reserve, which they can later use to purchase the home.

OKLAHOMA WATCH: Florida Couple Accuses Berry-Rock Homes of Fraud in Rent-to-Own Program (Tahlequah Daily Press, Jan. 21, 2025)

A Florida couple who signed up for a rent-to-own house in Yukon was offered a mortgage for the same property within months by an affiliate of Berry-Rock Homes, whose employee encouraged them to lie about their business income.

Credit-Building Platform, Rent-to-Own Service Open Doors for Home Seekers (The Dallas Morning News, Jul. 3, 2024) E

In the modern rent-to-own market, Dallas-based Pathway Homes has more than 500 active residents living in homes across North Texas, but also in Atlanta, Phoenix, Charlotte and central Florida.
The company launched more than two years ago to help people become homeowners like Smith. The real estate platform matches residents with homes owned by the company, moves them in and charts a path for buying the home.
Once a resident lives in the home, rent is predictable and stable, giving residents time to buy the home from the company, Cleary said.

These Rent-to-Own Homes Programs Can Help You Get into That House (HomeLight, Nov. 6, 2024)

Well, here’s some good news: there are multiple rent-to-own programs and lease-to-own options available to prospective homeowners. We’ve reviewed a variety of programs and sought advice from an experienced agent to help you understand your options.

Ahead, we compare four of the most reputable rent-to-own programs to help you answer the question, “Is rent to own a good idea?”

Rent-to-Own Contracts Offer Kansans Low Barrier Path to Homeownership – at a Higher Risk of Fraud (KMUW, Jan. 22, 2024)

Rent-to-own buyers often spend time and money fixing a property, said Jason Roach, the chief attorney for the Sedgwick County District Attorney’s Consumer Protection Division. That’s risky because those investments – as well as any up-front cash payment – could be lost if the buyers don’t end up getting title to the home.

In rent-to-own contracts, the buyers typically don’t get the title to the house until they’ve completed all the payments.

eBooks & Other Resources

The following eBooks and digital audiobooks are available to NAR members:

eBooks.realtor.org

Smart Guide to Real Estate: Step by Step Rent to Own (eBook)

Investing in Rent-to-Own Property (eBook)

Investing in Real Estate With Lease Options and “Subject to” Deals (eBook)

Books, Videos, Research Reports & More

As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.

Who Says You Can’t Buy a Home! (New York, NY: AMACOM, 2006) HG 2040.5 R25w

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