Lease to Own and Owner Financing

Q?: What is owner financing or Lease to own?

A: Owner financing is when the seller holds the mortgage on the home that the buyer purchases. The buyer has deed to the property and the owner has no claim as long as the mortgage is paid. There are several reasons a seller might do this. If the seller owns the house free and clear of any mortgage and doesn't need the cash now, he can sell it to you and get more interest on his money than if he placed it in a savings account. If an savings account is only paying 2% and he can sell to you for a mortgage of 6%, he's making money. I hold a second mortgage on a property I sold that helped the buyer with the down payment money. It is a perfectly legitimate practice.

Be careful of 'lease to own' programs. This can be a scam. This involves renting a property with some of the monthly rental going towards an eventual 'down payment' on the property. There was a scam recently where a person was promoting these type of properties. He was charging high rent for a year or two then at the end of the period when the property was supposed to be sold, he would find some reason to kick the tenants out and keep their money. If you consider this option, I would carefully check out the company that you're going to deal with and make sure that they follow through on their promise to sell. I would have an attorney review the agreement before signing it.

If you're going to consider a lease-to-own property, I would highly recommend that you go through a reputable real estate agent. Avoid the lawn signs that don't have a company name attached to it.

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Answer by Jim Reske