Lease To Purchase

What usually happens in a lease-to-purchase (rent-to-own) arrangement is that a portion of your monthly rent payment goes to a fund that will later be used for down-payment. There are two things that may possibly happen after the fund reaches a certain amount:

The transaction is converted from a lease to an owner-finances sales transaction where the seller gets a deed of trust and the buyer gets a warranty deed
Tenant buyer presents a document that shows accumulated down payment on a loan application to a third-party lender in order for the lender to approve their application for take-out financing. This has to be approved by the seller.

Lease Purchases In Texas

Rent To Own Contract Texas

Lease Purchases are among the executory contracts that are heavily regulated under Chapter 5 of the Property Code. Many of the requirements that were added in 2005 are focused mostly on the seller. Under the new code, the buyer can rescind a contract and get a full refund if the seller violates the contract.

It also requires the lender to consent to an executory contract.

Additionally,buyers can make complaints to the Deceptive Trade Practices-Consumer Protection Act (DTPA), which can lead to additional damages and attorney fees. These new regulations are meant to stop unscrupulous sellers that abuse executory contracts. Sellers used to disregard terms of executory contracts and misrepresent buyers as ordinary tenants to Justices of Peace.

Due to these regulations it has become more difficult for sellers to create contracts that do not favor buyers. Some even try to change the name of the lease purchase contract or rewrite the agreement, but this cannot work because as long as the agreement is an executory contract the regulations still apply.

Pros and Cons of Lease Purchase Agreements

How Does Rent To Own Work In Texas

LeaseToPurchase

A rent-to-own contract gives you an opportunity to save for a down payment and build credit. If the value of the home increases during the lease period, your home will get additional equity. A lease agreement also gives you an escape plan if the person paying the rent loses their job or if the value of the home decreases.

However, renters may not benefit from the low interest rates for mortgages and may have to pay higher interest rates for their lease. Another issue is that even if the value of the home decreases during the lease period, the price the renter pays for the home may still be higher than market price.

If at the end of the lease the buyer does not want to buy the house, they may lose the money in the down payment fund and their option fee.

Lease Purchase Agreement Financial Disclosure

How Does Rent-to Own Homes Work In Texas

Among the new requirements introduced involves financial disclosure. Property Code Section 5.071 states:

“Before an executory contract is signed by the purchaser, the seller shall provide to the purchaser a written statement that specifies:

the purchase price of the property;
the interest rate charged under the contract;
the dollar amount, or estimate of the dollar amount if the interest rate is verifiable, of the interest charged for the term of the contract;
the total amount of the principal and interest to be paid under the contract;
the late charge, if any, that may be assessed under the contract; and
the fact that the seller may not charge a prepaying penalty or any similar fee if the purchaser elects to pay the entire amount due under the contract before the scheduled payment due date under the contract.