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What can you tell me about lease with option to buy and owner financed homes?

My husband and I want to buy our first home. Neither of us have great credit scores but we can put $10,000 down. I have read up on some lease option to buy homes that will let you in with a down payment and no credit check. What can anyone tell me about these options? What is the difference between lease with option to buy and owner financing? DO NOT RESPOND IF: you are going to tell me to rent an apartment and clean up my credit. I already know this. I want to get into a house and only a house. Thank you in advance.

Public Comments

1. Usually a lease with option to buy is home offered as a lease but part of the monthly payment can be used to reduce the established price of the home (agreed in advance) if the home is purchased within a certain time frame (usually the term of the lease). However, the purchaser still must still qualify and acquire a loan from a bank before the deal can be completed. I suspect if the advertisement indicates no credit check, they are referring to the signing of the lease/option contract and not the loan to purchase of the home. Usually an owner financed home is when an owner will finance a second on a home. The purchaser will still need to qualify and acquire a first loan from a bank (usually about 80%). The owner generally will finance about 10% and usually charges a fairly high interest rate with the term being fairly short (about 5-7 years). Either of the above could be completely owner financed but that is very uncommon. Very few sellers (or developers) have the available cash to completely finance a home for the buyer.
2. Lease w/option: You are a tenant, just like any other renter. During the duration of the lease, you have the option, but not the obligation, to purchase the home in accordance with the terms of the contract. At the end of the lease, you are just like any other renter. You can leave, renew your lease, etc. Owner financed: You make payments to the previous "owner." When you complete payments in accordance with the terms of the deal, you own the home. If you fail to make the payments, "owner" can foreclose and take possession. It's just like having a mortgage. Sometimes these are structured so that previous owner keeps the deed. When you complete payments, owner conveys the deed to you. Before you engage in either one, consult an attorney. If the property you intend to lease w/option, or purchase w/owner financing, is already encumbered by a mortgage, your rights could be severely limited if the owner defaults on the existing mortgage.