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Basically, the lease-option or rent-to-own concept is simple: home buyers who lack sufficient down payment, have poor credit histories or high debt ratios, get to occupy the house they want for a set period -- usually 1 to 3 years -- in exchange for monthly lease payments. A portion of their monthly rent ($200-500/mo above market) goes toward an eventual down payment. They must also pay the property owner an "option fee" ranging from 3-10%. The option fee typically is also applied to the down payment, unless the lease terms are not met by the buyer. In that case the option fee and additional rent are non-refundable. Sometime during the lease-option period, the tenants are expected to apply for mortgage financing and purchase the house at the price agreed upon in the option.

The owner/landlord, meanwhile, gets a number of benefits from the deal:

There are always more buyers for a lease-option than sellers.
The tenants are highly motivated to pay their rents, which often are above going market rates.
Lease-option deals usually set top dollar for the sales price of the property.
The lease-option language typically lumps extra responsibilities on the tenants for property maintenance and upkeep, relieving the landlord of some customary expenses.
Excellent tenants, they usually take excellent care of the home that they plan to own.
Tax deductions belong to the seller until the buyer actually buys.
If the buyer changes his mind, option money and additional rents are forfeited.