Land Contract or Lease with Option? Know the difference.

You are finally moving into that house you wanted to buy, and lucky for you, the owner agreed to let you “rent to own”. Before you make improvements to the home, it is critical you understand the type of transaction you entered into. A land contract is the traditional “rent to own” deal most folks intend when the seller of the home finances the purchase. Typically, the parties agree to a purchase price in advance, a term for paying off the full amount and monthly payments are established. As buyer pays a monthly amount to live in the home, a portion of the payments reduces the amount owed on the home until the total price is paid and seller transfers the title to the house to the buyer. A lease with an option is dramatically different than a land contract because it only gives the renter the right to purchase the house for an established price at some future date and time. Under a lease with an option, buyer is not reducing the principal balance owed, and the seller can still sell the home to other individuals or terminate the lease according to the lease terms. Accordingly, it is not prudent to make home improvements or spend money on a home when you only have a lease with an option. Before you enter into any long-term real estate transaction, speak to an attorney so she can ensure that you are truly getting what you are paying for.