Of all the options this winds up being the cheapest in the long run, although it typically requires a minimum down payment of $2,500 to $3,500. What a perfect use for that tax return money! The beauty in this is that once your down payment is made, a portion of each of your "rent" payments goes to the actual purchase of the house! Unlike renting, where you wind up with nothing at the end.
This is a good alternative for those who lack the up-front Down Payment money required for a Contract Sale, yet still have the intentions of buying a home. In this case, the renter is in a regular Lease whereby normal rent payments are made. The difference is the "Option", which usually costs about one months rent (the Option Fee).
The Option gives the renter the legal right to buy the property at a certain price and terms agreed to up-front by both parties. During the term of the Lease, usually one year, this gives the renter time to make payments toward the Down Payment required for a Contract Sale. The Option Fee is typically credited to the Down Payment to help the renter get to the required amount.
Once the predetermined Down Payment amount is met, the renter executes his Option to purchase the home. What does this mean? It means that a portion of all future payments goes toward owning your home!
This is the most expensive way to buy a home, but generally the easiest for most. This is the Rent-to-Own scenario. The renter enters into a normal Lease and pays the normal deposit. In effect, the renter has no rights or claims of ownership except that of a tenant. The difference here is that the renter has agreed to pay monthly payments which exceed the normal rent amount.
For example, if the normal rent for your home is $600 per month, the contract would state that your rent payments shall be say, $700 per month (or whatever is agreed to by both parties). The excess amount, in this example is $100, is credited to your Down Payment account each month until the required amount is met.
The downfall here is that nothing except the required Down Payment amount is determined up-front. So if the market value for your home goes up during that period whereby the Down Payment is being accumulated, the renter could end up paying slightly more for a home than they would if they'd had an Option in place.