To cover both, at the time the lease is signed, you and the renter agree on a monthly rental amount as well as a purchase price for the home.  Contractually, the rental agreement is no different than a standard lease.  However, on the Option to Purchase Contract, you may agree to set aside a portion of the monthly rent to go towards the downpayment at the time of purchase.

To execute the Option to Purchase Agreement portion, a non-refundale sum of money is also paid to the seller/landlord as consideration for the option. In other words, the renter pays the seller to agree to consider selling the property to them at the end of the rental period. 

Prior to the end of the lease term, say 1 year, the renters must provide you in writing a contract to purchase the home at the previously agreed upon price and you must agree to sell. There are special clauses in the contract to protect you as the seller. 

1. The tenant must make rent payments on time or that month’s portion does not get credited towards the purchase price.
2. The tenant must not default on the lease agreement.
3. The tenant must exercise the right to purchase by the agreed upon date or the end of the lease agreement, whichever date is later.
4. The property must close to conveyance. 

If at that time, the renters still do not qualify for a mortgage, you keep the entire amount of the rent and the full amount of the Option fee.  If they do qualify, than you agree to credit them the portion of the rent already paid as part of the down payment, basically crediting them on the closing statement, like you would if you were providing down-payment assistance to the buyer.  This cannot exceed 3% of the purchase price.

PROs – You get your house sold in a tough market, if that’s what you really want to do. OR, you get extra money over and above the rent for the Option that is not exercised, like a $1000.00 bonus.  Many times, a Lease purchase agreement is conducted without a Realtor, saving you commission.  (Of course, statistics show that FSBO’s usually get 5-10% less from the sale of their homes than Realtor negotiated agreements.)

CONs – In a declining market, there is a possibility that your house may not appraise next year at the same value as this year.  If you agree on a price and it doesn’t appraise at that value, the buyer may not get aproved for financing on the agreed upon amount. That means you may sell you house for less than you bargained for.