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Is a lease to own option legitimate when purchasing a home?

I am considering a lease to own as an alternative to buying a home outright. The reason being that I do not have the capital for a down payment and my credit isn't exactly wonderful. How is a lease to own supposed to work...during the lease, who will be responsible for repairs to the home, property taxes and homeowners insurance. Will I be responsible as soon as I move in or after I actually assert my option to purchase the home at the end of the lease? What should I be looking out for to avoid getting scammed?

Public Comments

1. 1. get everything put in writing. if in doubt go see a real estate lawyer or go to a good library and look up the laws of your state regarding this. . be better if you still maintain insurance even if not required just in case.
2. you will pay a little higher rent and that money when yo can obtain financing is used for yor down payment and closing cost. Get in writing just what youexpect and live with it for a few years --ALways pay by check as that will be your paper trail when going for bank financing I am a mortgage banker in TN & KY
3. This is a legitimate process in the right hands but many unethical people try to use it as a scam. You really do need the services of a good real estate attorney unless you have someone you know who is very experienced in the area. First, be sure the price and terms are clearly stated. Be sure you have enough time to exercise the option and work hard to clean up your credit during that period. A year is the minimum and you may be able to negotiate longer. Normally, you will provide renter's insurance and the owner will carry a policy that insures his interest in the structure. He should be responsible for any major repairs but that depends on what you negotiate and write into the document. You will put up some option money at the beginning. If you don't buy (exercise your option to purchase) by the termination date, you lose that money. If you do buy, it goes toward down payment and/or closing costs. This can be a beneficial process for both parties if both are ethical and the document is well-written.
4. A Lease-to Own scenario is a great way to start on the path to home ownership especially in the situation you are in. Typically, on a LTO, the contract itself will be very important. This will tell you who is responsible for what. Normally you will have a lease term which can vary depending on the seller (2-5 years or so). During this time a percentage of your monthly on-time lease payments will be applied as a credit toward the purchase of the home when your purchase option can be exercised. The percentage applied to your purchase credits will need to be worked out with the owner of the home but 50% would be a good start. As far as the rest of your questions on taxes, insurance and upkeep, that will depend on the agreement you work out with the owner. Just keep in mind that if you are going to be held responsible for those expenses, you should get the same privledges as if you owned the home. For instance, you should be allowed to make cosmetic changes to the house, add-on to it if you like, or even sell it should the opportunity present itself. Another alternative you may want to discuss with the property owner is whats called a "Wrap-Around Mortgage" or seller carried financing. In this scenario, the property owner becomes the bank. You would negotiate the terms of a loan just like if you were getting a loan from a bank but instead of paying your monthly payments to the bank or lender, you pay them to the seller. If the seller has an existing mortgage on the property, a wrap-around mortgage may be a good way to go. Lets say the property owner owes $100,000 on a 1st mortgage with a $800 monthly payment. Lets say the purchase price you negoitiate is $125,000 and you agree to $1100 monthly payments. You would put this agreement on paper in the form of a note and record it on the property as a 2nd mortgage. You would also be put on title to the home (state laws permitting). Every month you would pay your monthly $1100 mortgage payment to the seller or thier attorney. They would take $800 and pay the first mortgage and pocket the $300. A few years down the road, you could refinance the property and payoff the mortgage you owe to the seller. That way the seller gets the money he wanted plus the mortgage interest payments you have made and the 1st mortgage on the property would be paid off. Since you would be on title to this property, you would be responsible for the taxes, insurance, and upkeep. If you should default on the mortgage then he can foreclose on you and take back the property. Now there are some dangers to this scenario. I had a good friend that used this method with a property owner. He mailed in his monthly payments ontime but the seller stopped paying the 1st mortgage and the property went into foreclosure. To avoid getting sued for damages the seller just asked my friend to refi the property for what the seller owed on it. Since the payoff on the 1st mortgage was ten's of thousands of dollars lower than what he owed the seller, he gladly obliged. It worked out for my friend but it might be a good idea to address this issue with the seller should unforseen circumstances arrise in the future. You may want to speak to a real estate attorney as laws vary from state to state. You can also try picking up a few books on the subject from the library or bookstore. Bottom line, the terms of the lease or purchase is up to you and the property owner so feel free to negoitiate. Good luck.
5. There are some good answers here but none completely accurate. Save yourself money and heartache. GET A LAWYER. Have him read the contract, explain it to you and revise it to your satisfaction.