As the name states, the buyer, or renter in this case, has the option to purchase the home that he/she is renting. However, both the buyer and the seller must come to a general agreement. The buyer can either purchase the home through what’s called a right of refusal. This means that the buyer has first option of buying the home before the seller puts the house on the market.

Most of the time, the financial arrangement between buyer and seller works like this. A certain amount of what the renter pays is put towards a down payment towards the purchase of the home. If the renter decides not to purchase the home, then the money is forfeited.

In addition, if the renter decides to purchase the home, he/she needs to qualify for a home loan with any mortgage company if the agreement between the buyer and seller calls for one. When this happens, the option money (the extra money paid by the seller) is not applied toward the down payment. It can be applied toward the cost of the house. If the money is going to be for a down payment, then the agreement must be within the guidelines of the corresponding finance company or lender.

FHA’s Creation
About the FHA
Mortgage Types
Buy Downs
FMHA Loans
FHA Loans
FHA Loans, Con’t
Graduated Payment
Rent to Buy
Shared Equity
VA Loans
Prepayment Penalty
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Reference text: Mortgage Loans: What’s Right for You?, by James E. Bridges with Deborah J. Bridges. Copyright 1989, Published by Betterway Publications, Inc., Crozet, VA