This is a situation where a property owner rents a property to a tenant for a set period of time — usually a couple of years.
Upon expiration of that lease/rent arrangement, the renter would then have the option to purchase the home, and that option is written into the contract.
Lease options also can work like a leaseback,
but in this case only the buyer would set a price and determine terms for the seller to purchase the home back after a set period of time.
Quite often, this option is given to persons with less-than-perfect credit who would have difficulty acquiring a loan, but who have decent income-to-debt ratios.
John Smith is looking for a home, but his credit score is very low and he cannot secure a loan from the bank.
He has a good job, and very little debt, but the bank still will not provide the loan.
In this situation, a lease option arrangement would suit Mr. Smith very well.
He can get a quality home in the short term while he repairs his credit, without having to move into an apartment or put huge amounts of cash down.