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Understanding the land contract vs. rent to own

In Florida, land contract and rent to own are two important ways for people to get access to property without using the traditional mortgage process. They offer separate sets of advantages and disadvantages that make them unique choices that offer easier access to financing than a mortgage would.

Land contract and rent to own

Land contracts are special because they are a direct transaction between the buyer and seller of property. The seller allows the buyer to inhabit the property and pay off the cost over several years. This is not a mortgage and there is no bank involved. The buyer does not get to hold the title to the property until after they pay off the full debt. In a land contract, there are often smaller payments over time and then one big payment at the end to clear the remaining balance. The seller covers the risk that the buyer does not pay back by keeping the title until the end of the transaction.

In contrast, a rent to own transaction is really two transactions. In the first transaction, the buyer rents the house from the seller. They don’t build any equity, but they don’t need any kind of bank approval to get started. After a certain time period, the buyer agrees to buy the house using a traditional mortgage. This buys time for the buyer to find a good mortgage option while being able to live in the house in the meantime.

These two options are good for a buyer that does not have good credit and a seller who is willing to work with them to provide a housing financing solution.