Lease Purchase, Lease Option, and Rent To Own...The Basics.

In concept, all of these are very similar methods of purchasing Real Estate with a delayed closing, with some small but significant differences. The goal of each is however the same...acquiring the legal occupancy rights of a property with the sole right to purchase the property in the future within a stated period of time.

Of the three, a Lease-Purchase (which is almost identical to Rent To Own with 1 real difference, see below) is far more attractive to savvy home Sellers these days. A professionally structured and maintained Lease Purchase signifies to a home Seller that you indeed absolutely intend to purchase the property, and to prove it you will make a significant but reasonable "Down Payment Deposit" on the home upfront to secure the sole right to purchase it within a specific period of time. This deposit is fully 100% credited back to the Buyer only when you close on the home. Conversely, Down Payment Deposits are non refundable in case of Buyer default and are then Liquidated Damages (see definition below) payable to the Seller. Combined with monthly "Rent Credits" (See definition below) a serious Lease-Purchase Buyer can quickly accumulate a very sizeable credit at closing. The combination of the larger deposit and monthly Rent Credits allows the transaction to close much quicker making this method the most popular in Seller's eyes. If you want to be taken more seriously by home Sellers, get a better price, better terms, and conditions, a Lease-Purchase is your best bet compared to Rent To Own or a Lease-Option.

Rent To Own, as stated above, is very similar to a Lease-Purchase with traditionally only one real difference. A Rent To Own Buyer typically does not have as large a "Down Payment Deposit" upfront. Usually only the 1st months payment and a deposit equal to the 1st months payment, similar to a Rental agreement...hence the title...Rent To Own. The Rent To Own Buyer relies on monthly "Rent Credits" over a longer period of time (2-3 years or more) to accumulate enough equity for a significant down payment to be able to close on the home. There are 2 major issues with Rent To Own vs. Lease Purchase that are thereby created. 1st-Sellers often don't want to wait the usual 2-3 years or more to close on the home so it is difficult to find a Seller willing to agree to a traditional Rent To Own transaction structure. 2nd- The smaller "Down Payment Deposit" assiciated with a Rent To Own vs. a Lease-Purchase is the Seller's only "Liquidated Damages" in case of Buyer default so, Seller's  are again more reluctant because in their eyes the Buyer doesn't have much "skin in the game" and may be more apt to default.

Lease-Option agreements, (sometimes confused with Lease-Purchase agreements) have one fundamental difference when compared to either Lease-Purchase or Rent To Own transactions. The big difference is that a Lease-Option Buyer is clearly stating in their offer that they may or may not actually purchase the property. They are undecided about the purchase but would still like to retain the sole Option to purchase the property should they decide to do so prior to the end of the lease term. From a Seller's point of view this scenario is less attractive simply because of the undecided nature of the Buyer. Typically to mitigate the risk of the Buyer deciding to not purchase, the Seller will want a higher "Option Fee" which is treated the same as a  "Down Payment Deposit". As well, the Seller may be less willing to negotiate price, terms and conditions of the sale until the Buyer become more serious about the actual purchase.

Terms:

Down Payment Deposit: A sum of money from the Tenant/Buyer  to be used as a non refundable deposit to secure the property and validate a Lease-Purchase or Rent To Own contract. The Down Payment Deposit is traditionally fully 100% credited back to the Buyer towards closing costs or off the purchase price when the Buyer closes on the home. In case of Buyer default, the Down Payment Deposit is forfeited to the Seller as liquidated damages unless other arrangements are stipiulated in the contract. 

Rent Credits: A set sum of monthly credit agreed to in advance that a Tenant/Buyer will receive for making on time monthly payments once the transaction closes escrow. (Note: there are federal banking laws that pertain specifically to the amount of rent credit a Tenant/Buyer can actually get credit for at closing and how these credits need to be documented during the lease term. Consult a licensed professional that specializes in Lease-Purchase transactions and the like to be sure your transaction is structured properly.) 

Default: to fail in fulfilling or satisfying an obligation in a contract.