Your research should have included the fact that a Realtor could have worked for you as a buyer's agent and it would not cost you anything, but the agent is paid out of the seller's commission. Your question, hopefully shows others why that is important.
Hope this isnâ€™t too late, sorry I didnâ€™t see your post until today.
You are basically renting the home until you can buy. A few questions? Is your option fee refundable? Is the money being held in a separate account? Make sure you get title work so you know what he owes. Is the home being bought at today's market value? What happens to your offer and down payment if the home goes down in value? We have seen some sellers rent their homes and then stop making payments. Again you need someone to look out for you.
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You should have an attorney review this contract. There are many things that could happen that would not be great for you, so you need to know you are protected. For example, what would happen if he stops making the mortgage payments to the bank and lets it fall in to foreclosure? If you don't know he is the owner, you should not sign with him.
Please get professional advice from someone you hire to be your advocate and adviser in this very serious matter.