Alternative home financing transactions like land contracts and leases with option to buy have garnered much attention. NCLC’s research has led us to conclude that these alternative transactions do not provide a meaningful pathway to homeownership. Rather, land contracts and leases with option to buy are both costly and destructive detours that diminish the likelihood that consumers entering into these contracts will ever own a home. We estimate that they carry a failure rate of over 50%, compared to a foreclosure rate of roughly 1% for FHA-insured mortgages utilized by many first-time homebuyers. These transactions disproportionately harm consumers of color that have been unable to access traditional mortgage loans. Land contract and lease-option transactions are built to fail, and they leave consumers hoping to achieve homeownership far worse off than simply renting.
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