A New Lease-Purchase on Life

Catherine McAlpine of Rockville, with 8-month-old Nora, says trying to work out a lease-purchase arrangement for their house has been "a live-and-learn situation," in which they don't expect to break even. (By Mara Lee For The Washington Post)

Not many of those arrangements go through to a sale, he said. "I don't like them for myself," he said.

And those pitfalls are in addition to the normal risks of rental properties -- damage to the property, late rent or nonpayment of rent.

Michael Brown, who is using a rent-to-own arrangement on a house in Manassas that he bought from a bank in May 2007, said his buyer-tenant family has been more reliable than the other tenants he has, most of whom have paid late or been short at times.

Market rent is $2,500 for the Manassas house, Brown said. He at first agreed to $2,600 rent, with $200 a month applied to the down payment.

Brown's tenant didn't have $2,600 ready for the first month's rent after putting down a $5,000 deposit, so Brown lets him pay from each paycheck and charges $2,800 because the tenant is paying for the previous month rather than the month ahead.

That $2,800 is just enough to cover an interest-only mortgage payment for Brown. When all his tenants pay on time, he pays more toward the mortgage.

Brown said that when he bought the house, similar ones were selling in the $460,000s. He and the tenant agreed 10 months ago on a $499,000 price eight months from now.

The contract says the sales price is contingent on an appraisal at that price, and Brown said he will consider selling at a lower price if it doesn't appraise -- "if it covers all my costs."

"I haven't seen a downside, especially in a soft market," he said.

Jared Martin, a mortgage broker at the Alexandria office of

GOTeHomeLoans, said lease-purchase makes sense if you're a buyer who needs to sell your old house, because bridge loans have dried up.

But he said that if you're a tenant-buyer because of damaged credit, renting to own could provide false hope. Commercial banks are expecting a healthy credit score of 680, and in Manassas and other declining outer-suburban markets, at least 15 percent down.