Owner financing is just that, the owner finances the deal rather than the bank. This isnâ€™t all that common for the simple reason that the vast majority of owners arenâ€™t financially capable of doing this. For one they really need to own the home outright, otherwise when then sell the home to you, they would have to pay off their existing mortgage. Unless you were giving them a substantial down payment, unless they owned the house outright they would have to come out of pocket at the closing. Once they have sold you the house they would collect your monthly payments the same as the bank. When I have structured the occasional Seller financed deal, more often than not thereâ€™s a balloon payment due. In other words after a period of time (say 5 years) a final lump sum payment is due. This give the buyer a period of time to build up some equity and then go to the bank and get a traditional mortgage that can be used to pay off the Seller when the balloon payment comes due.
Lease to own isnâ€™t complicated, itâ€™s just that most Buyers have absolutely no idea what it really means and I have never actually seen a Buyer execute.
In this case you pay the Seller an non refundable fee up front to take their property off the market. You agree on a purchase price for the property up front. You get possession of the house the same as if you were renting it, and pay a monthly lease or rent fee to the Seller. You are given a period of time to â€œexecute your option to buyâ€ and depending on the terms of your initial agreement the Seller credits you a portion of what youâ€™ve paid them (this can be part or all of the monthly rent and part or all of the original option fee you paid upfront) as your down payment. The advantage of this to a Buyer is it gives them time to get a loan and some of the money spent on renting the property is credited back. Most Buyers think they will be getting all of the money they pay in rent back, but this isnâ€™t the case, if it were it would be the same as the Seller allowing you to live in their property for free while you were paying the rent. Typically thereâ€™s a sliding scale, and the quicker you exercise your option to buy the more credit yourâ€™ given for the money youâ€™ve paid the Seller, as time goes on you get less and less credit for the money youâ€™re paying as rent.