A lease-to-own or rent-to-own home means the occupant can pay rent for a period of time, with a portion of those payments going toward the purchase of the home after the rental period. Many times those portions of the rental payments help toward the down payment or principle of the home.

This is a great option for those with bad credit who cannot currently qualify for a mortgage. They can use the rental or leasing period, to work on their credit scores so that a mortgage is possible at the end of the lease. (Making rent payments is one way to improve credit scores.)

Rent-to-own homes are also great for individuals who have good credit, but who may not have enough savings to purchase. This option gives them time to build up their savings so they can purchase the home at a later date. The seller cannot sell the home while in a rent-to-own agreement, which gives the renter time to get to know the area, since there is also no obligation to buy at the end of the rental period. (This is secured by an “option fee” upon entering the agreement.) Renters are also not responsible for taxes and insurance in this option.

The one major drawback in a rent-to-own home is the possibility of eviction, which would cause the renter to lose all the money previously invested in purchasing the home. The seller could fail to pay his or her mortgage, or the renters could also fail to make payments, and immediate eviction could occur where payments and fees would not be refunded.

This risk can largely be avoided with some upfront research. Check local rent rates. If the rent-to-own seller is asking a much higher rent or a much lower rent, this could be a sign of a scam. Nothing is truly “too good to be true”. Also be wary of high “upfront” or “commitment” fees. Often scammers will take that money and run. Simply be wise, do your research, talk to the bank or realtor concerning the home, and all should be well.

Owner financing is buying a home where the owner is the financer. Essentially, the owner is the mortgage broker and the seller at the same time. Depending on the agreement, an owner can provide all or some of the money to the buyer for the purpose of purchasing the home. The buyer then repays the seller what is owed to the seller.

Flexibility and cutting out the bank as a “middle man” are two of the major benefits in owner financing. Buyers can work directly with sellers in owning the home.

The seller’s loan is often shorter leaving a higher risk of the buyer being unable to refinance at the end of the borrowing period. Often these agreements also have higher interest rates or higher sales prices than other mortgages. Buyers are also responsible for taxes and insurance in this purchase option.

Lastly, be sure to check with a real estate attorney that there is no existing mortgage on the property. If there is, do not purchase with the owner. Owners can only finance a house themselves if there is no existing mortgage on the home.

Foreclosed homes, or Real Estate Owned homes, are homes that have completed foreclosure and are currently bank-owned. Foreclosure Auctions sell foreclosing homes for the remaining mortgage balance of the home.

These are often sold at much lower prices.

Homes are purchased “as is”, with no inspections, warranties, or repairs. In the case of Foreclosure Auctions, often they require cash for the down payment or sometimes the entire cost of the home on the spot.

These are homes where the owner is either in danger of or currently defaulting on their mortgage, forcing them to sell due to threat of foreclosure. This option can be deceiving because it appears that a home will be cheaper and sold more quickly.

However, sometimes these take much longer and are more costly because the bank must accept the price of the home sold. Often these homes are worth less than what is left in the home loan, but banks and lenders often struggle accepting a sale price that “shorts” them the full amount owed to them.