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A lease option

You keep the house for now. I lease it from you, and I get the right, but not the duty, to buy it later at a price we agree on today.

Who holds the house and the loan in a lease option
  • The house, today (you hold it): Yours
  • The house, when we sign (you hold it): Still yours while I lease it and pay you rent
  • The house, later (I hold it): Mine, at the agreed price within the agreed time
  • The loan, today (you hold it): In your name
  • The loan, when we sign (you hold it): Still in your name, and you keep paying it
  • The loan, later: Paid off when I buy

How it works

  1. You tell me about the house, the loan and how far behind you are.
  2. If it fits, we agree up front on the purchase price and the length of the lease. I put those in a written offer, along with the monthly rent.
  3. The missed payments have to be caught up so the loan is current. We agree in writing on how that happens.
  4. I pay you rent each month, and you keep paying the mortgage until I buy. You keep owning the house until then.
  5. I buy the house at the agreed price within that time.

Who it fits

  • You owe close to what the house is worth, and you're not in a hurry to be off the title.
  • The rent I can pay would cover most or all of your monthly payment.
  • You're willing to stay the owner, and responsible for the loan, until the sale happens.

What stays in your name, and for how long

Everything: the house and the loan, until I buy it at the price and within the time we agreed. If the purchase doesn't go through, they stay yours.

The risks to you

  • You're still the owner and still on the loan. If the rent stops, the mortgage payment is still yours.
  • Missing mortgage payments can hurt your credit score and limit your options. Negative payment information can stay on your credit report for up to seven years.
  • Federal law lists transfers a lender can't use the due-on-sale clause against, and that list includes a lease of three years or less with no option to buy. A lease option includes an option to buy, so it isn't covered by that line. Ask a lawyer how your lender could treat it.
  • In some states, a lease combined with an option to buy is treated as a contract for deed. Texas is one.
  • We agree on the price and the length of the lease up front, and my plan is to buy at that price within that time. Legally, though, an option gives me the right to buy, not the duty, so the agreement should spell out what happens if the purchase doesn't go through, and you'd still own the house.

What I need to see to make an offer

  • Your latest mortgage statement, showing the payment, the balance and the rate.
  • The amount needed to bring the loan current, and any foreclosure notice or sale date.
  • Your price, and how long you'd be comfortable leasing.
  • The address, and a few photos or a walk-through.

Sources

  1. CFPB: A person I hired to help with my mortgage advised me to stop making payments on my mortgage loan so I could qualify for a loan modification. Do I have to do this? (consumerfinance.gov)
  2. CFPB: How long does information stay on my credit report? (consumerfinance.gov)
  3. 12 U.S.C. 1701j-3: Preemption of due-on-sale prohibitions (GovInfo) (govinfo.gov)
  4. Texas Property Code, Chapter 5: Conveyances (tcss.legis.texas.gov)

Want me to look at your situation?

Tell me about the house and where things stand. I'll look at the ways I could buy it, and we can talk through how they compare with your other options. I never charge homeowners anything.

Ask about my house