How does renting a home with an option to buy work?
by 
Afrodite Tsatsis
ANSWERS: 2
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The "tenant/buyer" agrees to rent the property for x amount of years, at which time they can either exercise the option to buy it or move on. There is normally a down payment needed before the tenant/buyer moves in to the house, and this down payment is normally non-refundable if the option is not exercised. Once the tenant/buyer is in the house for a year or two, they are a much better risk to a mortgage broker, and have a much better chance of getting approved for a loan. The positives: A person with no credit can buy a house. You can live in the house for a year or two before you decide if you want to buy it or not. Usually need a smaller down payment than if you were buying a house. No long waiting period to move in...usually just a few days. Many times, you can live in a house for what you were paying for an apartment before... Negatives: If you move out, your option deposit can be lost. Some investors will allow you to switch houses, applying your deposit to the new house, though. No tax advantages. To the IRS, you're a tenant until you buy the house.
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Most of these homes are offer this way because the seller can not sell the home for what the pay off is. So they offer other terms to attact people who may have bad credit and get a future price when their credit improves. Most times these homes are 10-20% over market value and no bargin.
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