Rental vs Lease Option vs Contract for Deed

by | Jul 7, 2020 | Getting a Home | 0 comments

We understand that while most people are familiar with renting an apartment or home, the terms Lease Option or Contract for Deed can create confusion. Read more to understand the key differences and what’s best for you.

Home Equity Partner offers a variety of options to meet your needs and budget. Home Equity Partner primarily offers Lease Options and Contract for Deed homes. The key differences are the costs and how involved you may be as a future home owner.  See table below.

With a larger down-payment, you can do a Contract for Deed and Home Equity Partner acts as the bank. You would be primarily responsible for repairs and are essentially the home owner. This saves you over the term of the contract before making the final purchase. 

With less down you can look at getting into a lease option. This is a rental but with an exclusive option agreement giving you control over the home. This allows you to build equity while you are working on credit or work history to get a traditional home loan. You have exclusive right to purchase the home at a set price and time but are not obligated to do so. While this may cost more then traditional renting you are essentially getting into a starter home and automatically saving up for that bank loan.

Both options help people who can’t get a traditional loan when they have poor credit, odd work history, or or individuals who need to move in less than 90 days. 

Many people struggle to buy their primary home because they cannot qualify for a bank loan. We raise private capital to buy homes for people so they can finally become a homeowner. Typically this is a 1-5 year bridge loan (lease option or contract for deed) that allows them to act like a homeowner while they work to obtain a bank loan.

Renting vs Lease Option vs Contract for Deed​

Category Renting Lease Option Contract for Deed
Down Payment 1st month rent 1-10% of purchase price, minimum $5,000 5-20%
Who owns property? Landlord Landlord but you have exclusive buying / selling rights You do.
Rent amount Fair market rent Typically higher than normal rent Based on interest rate but usually 1% of purchase price
Biggest Pros No long-term commitmentsNot responsible for repairs Control property without owning itBuild equity while you rent You “own” the homeAct like a homeownerPossible tax benefits
Biggest Cons Landlord problemsNot building equityNo ownership Higher down payment than rentalResponsible for most maintenance 100% responsible for home repairsSizable down payment

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