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Mortgage Library: Ask a Mortgage Related Question: Answers: Lease-to-Own Loans
I am thinking of selling my townhome and wanted to offer my tenant that lives there a lease to own option that I've heard of. How do those work and what are the advantages/disadvantages to both me and my tenant?
With a lease option you are essentially just renting the house to them. You still retain title and all legal rights and responsibilities. The main difference is that typically you would credit some portion of the payments towards the eventual purchase. Say the rent is $2,000 per month and you agreed to credit $100 of that towards purchase. Say in twelve months they qualify for a mortgage loan. Now you are obligated to pay $1,200 towards their
closing costs. Not a big deal because often the seller pays something anyway.
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