Landlord or lender
With a lease option, you rent the house to someone who also has the option to buy it later at terms you agree on now. Until they exercise that option, you remain the owner, with an owner's costs and a landlord's duties.
With seller financing, the buyer takes ownership at closing and pays you over time under a promissory note, usually secured by a mortgage or deed of trust. You are no longer the owner; you are the lender.
Option vs. obligation
A true lease option gives the tenant the right, but not the obligation, to buy. If they walk away, you keep the house and generally the option fee, depending on your agreement.
A lease-purchase is different: it usually commits the tenant to buy. The wording matters a great deal, so have the documents prepared or reviewed by an attorney in your state.
State and federal rules
Some states regulate rent-to-own arrangements as executory contracts. Texas, for example, treats a residential lease combined with an option to buy as an executory contract for conveyance and applies specific requirements to it. Check your own state's rules before signing.
On the seller-financing side, federal Regulation Z includes provisions on people who finance the sale of their own property, and installment-sale tax reporting may apply to your payments. A real estate attorney and a tax professional should review your situation.
If you still have a mortgage
Either structure can collide with your existing loan. Transferring the house in a seller-financed sale may trigger your mortgage's due-on-sale clause, and some lease-option structures raise similar questions.
If you have a loan, ask an attorney how the arrangement interacts with it before you commit.
When a cash sale may be better
If you do not want to be either a landlord or a lender, a cash sale ends your involvement at closing. Prominent Cash Offer buys houses nationwide for cash in any condition, with no fees or commissions, and pays the closing costs on cash purchases.
Cash is Prominent's primary service. Creative arrangements are evaluated case by case, not every property, seller or state qualifies, and nothing here guarantees a price, proceeds, a structure, timing or tax treatment.
Authoritative sources
These official resources are starting points for records or public guidance. They do not replace property-specific professional advice.
- Texas Property Code, Chapter 5 (Subchapter D, executory contracts)Texas treats a residential lease combined with an option to buy as an executory contract for conveyance and regulates it; one example of a state rule.
- 12 CFR 1026.36 (Regulation Z), eCFRParagraphs (a)(4) and (a)(5) set out when a person who finances the sale of their own property is not treated as a loan originator.
- IRS Publication 537, Installment SalesThe IRS explanation of how gain is reported when a seller receives payments after the year of sale.
- 12 U.S.C. 1701j-3 (Garn–St Germain), Cornell LIIThe federal law that allows lenders to enforce due-on-sale clauses, with listed exceptions.
This material is general education. Contract, legal, tax, title, probate, foreclosure, tenant, insurance, safety, and property-condition questions may require qualified professional advice.