Lately, there have been lots of people asking me the difference between lease option, rent to own and the Famous Rent to Own on Steroids Program(tm). I know that there are even more people who do not know and don’t ask. I am always impressed when someone asks. It means they are already knowledgeable, self confident, and desire to increase their learning.
The three phrases are quite similar in what they propose to do, which is to move the title of a house from one person to another, usually avoiding the use of commercial banks and is designed to accommodate those who can not or do not want to deal with banks. Here are some differences.
Lease option is a lease and an option. They may be combined into one document or may be two and there are variations of them, like a lease with contract for option. The basic lease option provides for the buyer to rent under the terms of the lease with the right (but not the obligation) to buy the property at terms and prices stated in the option document. Normally there is something like first, last and security to be paid for the lease. There is also option premium (the amount you pay to buy an option) which gives the buyer the right, but not the obligation to buy.
The option will state the term of the option and the strike price or prices. The strike price is the price the buyer can buy the house for at various periods of time. For example, it would be possible to buy at $100,000 for 12 months and maybe $105,000 in the second 12 months and there would be a date specific at which time the option would expire and then become worthless.
If prices of the houses go up the buyer would be more likely to exercise his option and buy the house. If prices went down, he could simply choose not to buy. Which means he would not have to sell the house, would not have to pay marketing and sales so costs and could simply leave as he could under the terms of the lease.
Some of the money paid usually becomes a credit for the buyer. The lease option may or may not also provide a mortgage for the buyer and may state the terms of the mortgage.
Rent to Own is a more generic term. Basically it means the same as lease option and is usually used for lower priced houses. A $150,000 house might be available as a rent to own. a $900,000 house would be more likely to be offered as a lease option. But both terms would really be equally applicable for high and low priced houses and usage would tend to be a function of who is talking to whom.
Famous Rent to Own 0n Steroids Program(tm) is a specific kind of rent to own, or lease option, with really incredible features.
First ALL of the money you pay in the first year becomes your down payment. That is option premium and all rent becomes down payment.
Second there is a guaranteed mortgage program with the Famous Program. Make 12 consecutive monthly payments on time and maintain the house at though it were you own already and you get a mortgage.
You EARN a mortgage. You do not Qualify for a mortgage so there is no credit score.
YOU DO NOT QUALIFY FOR THE MORTGAGE.
You may qualify to get into the lease portion, but there is a program that offers no credit check to get into the lease.
The Famous Rent to Own on Steroids Program(tm) is Trade Marked by the United States Patent Office and there is a detailed treatment of the entire process in the book 911 For Landlords. Most landlords are reluctant to offer this program because they think it is too expensive. It really has great benefits for buyer and seller and has negatives for banks that loose out on making loans and real estate agents. A seller can more likely sell his house as a for sale by owner if he is offering a program like this, so the seller is less likely to need an agent to sell her house.
Giving back all the rent paid is pretty similar to a 12 per cent discount in the price, which is pretty similar to the combination of a real estate commission and making mortgage payments for six to seven months waiting for a buyer to be found by your real estate agent.
Famous Rental also will close at a title agent or attorney’s office and even the beginning of the lease option period can be done at title agent or attorney, but is done so at the choosing of the buyer, who pays the closing costs.
More details and what to look for and look out for if you are looking to use a lease option, rent to own or the famous Rent to Own on Steroids Program™.