Lease with Option to Buy Homes - Pros and Cons

Lease-with-option setups are starting to catch on and are actually fairly popular with mobile homes in particular. A lease with option to buy can be a definite win-win for all parties involved. For the buyer/renter, there’s time to get settled in, see how you like the property, and increased buying power. For the seller/landlord, there’s minimum risk and no commissions or fees. Let’s look at a few advantages for the renter/buyer:

Advantages for the renter/buyer:

Rent moneys apply towards purchase price
Credit problems not a problem. With the lease-with-option setup, the financing is strictly at the owner’s discretion and your credit history won’t be an issue.
No taxes, less liability. As long as you are paying rent (which will go towards purchase price anyway), the taxes on the property are the landlord’s, not yours.
No move-in time. Not a problem…you’re already there!
Maximum leverage. You’re getting in the door on a valuable piece of real estate without putting down money for a down payment, closing costs or any of the other expenses that go along with a conventional home purchase (other than lease-with-option-to-buy)
Minimal maintenance. Until the day you actually decide to buy, maintenance issues on the property are up to the landlord, not you.

Disadvantages for the renter/buyer:

Higher-than-usual rents. If the renter gets cold feet or for some reason can’t follow through on the lease-to-buy option, he will have spent considerably more money on rent than he may have in other situations.
Non-refundable deposit. Again, if the renter reneges for some reason on the lease-with-option, his deposit that he put towards purchase will most likely not be seen again.
Price. In a declining market, a home price that was agreed upon two years ago may not be a fair price anymore. That will mean that the deposit and rent premium will not be money well spent, and the renter can wind up purchasing a house that’s above market value if he follows through.

It’s important to remember that many of the people who would be interested in a lease-with-option are people who can’t qualify for a home loan. If their financial standing doesn’t improve or if the landlord/owner doesn’t want to do an owner-finance (or if he needs to sell, and not necessarily to the renter), there are a number of ways that a lease-with-option can go wrong.