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Stacey, Home Buyer in Ohio

how does a land contract differ from a rent to own agreement on a house?

Asked by Stacey, Ohio Mon Sep 26, 2011

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These are great answers, I would only add that the land contract should be a recorded document for the benefit of the buyer. The problem is that many sellers enter into land contracts while they have an existing mortgage. It is generally a violation of the mortgage agreement to sell the property without paying off the current mortgage, although these days most mortgage companies/banks will look the other way as long as they keep getting paid. And here lies the problem. If your seller stops paying his mortgage, goes into foreclosure, you may be left out in the cold.

So, get yourself a lawyer who specializes in Real Estate and they will be sure to cover all the bases with you. Not trying to scare you off. These can be really good deals and a great way to buy a house, just that there are other pitfalls you don't have with a straight up transaction.
0 votes Thank Flag Link Mon Sep 26, 2011
"Rent to own" is a vague term that covers a number of different techniques, including lease-option, lease-purchase, and even land contracts. (Technically, a land contract is NOT rent to own, but some companies promote "rent to own" when they're actually using land contracts.)

Here's a real quick explanation:

Lease-option: A unilateral (one-way) agreement. The seller agrees to sell the property. However, the tenant-buyer has the option of buying or not buying. Generally, there's an up-front (usually non-refundable) option fee. Typically, a portion of the lease payment is credited toward the purchase price. The option usually is for a set term, with a pre-set purchase price . . . though that's all negotiable. At the end of the option term, the tenant-buyer has the right (but not the obligation) to purchase. The tenant-buyer would obtain traditional financing from a bank.

Lease-purchase: A bilateral (two-way) agreement. The seller agrees to sell the property. The tenant-buyer agrees to buy the property. Generally, there's an up-front (usually non-refundable) option fee. Typically, a portion of the lease payment is credited toward the purchase price. The option usually is for a set term, with a pre-set purchase price . . . though that's all negotiable. At the end of the option term, the tenant-buyer has the obligation to purchase. The tenant-buyer would obtain traditional financing from a bank.

Land contract: A bilateral (two-way) agreement. The seller agrees to sell the property. The buyer agrees to buy the property. There's typically an up-front payment. The buyer makes monthly payments to the seller. Often, the financials are structured with a balloon payment; after x years, the buyer is obligated to pay off the remaining balance to the seller, usually be getting new financing from a bank. At that point, the deed is transferred into the buyer's name.

So, in a land contract, there's no lease. The buyer is buying from Day One. However, as with the other possibilities, the deed actually isn't put into the buyers name until some point in the future.

There are a couple of other variations, too--from wrap mortgages to contract for deed. Best advice: Make sure you have a lawyer review the paperwork before you sign anything.

Hope that helps.
0 votes Thank Flag Link Mon Sep 26, 2011
HUGE Help!!!! Fantastic explanation!! Thanks!!!!
Flag Sun Sep 22, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
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Both have risks for buyers that are not included in a traditional purchase transaction. Basically, with both of the transactions you mentioned there is an element of trust that the seller will (or will be able to) complete the transaction if you hold up your side of the deal. That can be a big if!!

However, most people asking about either of these do not want to hear the negative aspects, only the how-to side of the equation. So, the biggest difference between them is a rent to own may not (should not) contain personal liability to any debt other than the rent and or deposit. The land contract should contain liability because it is a promise to pay.
0 votes Thank Flag Link Mon Sep 26, 2011
A rent to own program is not defined in Ohio law and is subject to the whims of the parties involved. A Land Contract is well defined by Ohio law and offers protections for both the seller who is financing the transaction and the buyer.
0 votes Thank Flag Link Mon Sep 26, 2011
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