Personally, I would be hesitant to buy anything at the top of my budget. I think that everyone would be wise to consider these words at the top of this forum:
The best way to realize the pleasure of feeling rich is to live in a smaller house than your means would entitle you to have. - Edward Clarke

terriks - we took that into account. This is at the top of our "comfortable" budget. This does not max out our incomes in any way. We could easily afford 30% more than this particular house.

'Rent with the option to buy' is usually used by a purchaser with a poor credit history or no down payment cash.
These agreement often contain a 'rent credit' that is applied towards the down payment for purchase, forcing the buyer/option holder to 'save' for the down payment.
The rent is often above market due to the credit.

In my area of the midwest, this type of purchasing is fairly common, especially with sales rather slow. I've known many buyers and sellers who have successfully done this -- good for both of them.
But I have also read about some sellers who use this as a scam. They may collect a tremendous amont of money from the buyer/renter and then find a tiny technicality to obstract the buyer from eventually owning the home. Also, there are worries about who holds title? What if that person dies? What if that person loses a lawsuit & the property is taken away?
So I'd make sure that I was working with a real estate attorney at every step of this procedure.
Good luck
Susan

When moving to a new area, one should rent first. I've moved many times.

I don't see too many cons as long as both parties agree on a price NOW & you would have to pay similar rent money if you were renting another, anyway.

If the value goes down further, you have the option to buy at the agreed price or walk...or maybe the seller would re-negotiate if he wants to sell badly.

It's more advantages to the renter than the seller. The seller has to honor the selling price & the money toward the purchase from renting.
You're both gambling that YOU will want to live there & HE will get his money at TODAYs market value. The seller hopes to have the house sold, whether the market is good or bad.
YOU can save a good down payment through paying rent & have a set in stone price OR walk if you don't like things. You'd only be out rental money which you would be if you plan on renting anything.

The option/rent would give you a chance to get your bearings around town & see if that's the neighborhood you really want. If not, you haven't lost anything because you would have paying that money for another rental.

I don't see rent/options as a bad credit thing. I see it more like taking a chance that your rental money going towards the possible purchase will turn out to be a purchase for less (rental money going toward purchase)while your checking out the house & the neighborhood.

let's say the rental is $1500/month. That's $18,000 in downpayment. That house will cost you 18k less. Although, you hope the market holds & does not take another nosedive. If comps a year later will go for 50k less than your rental, it would be wise for you to re-negotiate (which the seller hopes NOT)the purchase price or WALK.
The Deed for rent/option can be recorded in the Town Hall in some states. Be real careful with the verbage in the paperwork so you lose nothing & can walk, just in case ;) Need an atty for that.

The biggest pitfall is that the seller cannot deliver a clear title when the buyer fulfills their part of the contract.

At the very least have a lawyer look over these agreements an try and have them recorded at the courthouse to put everyone on notice that property is encumbered by the agreement.

There are pro's and con's of Lease with and Option to buy.

The first thing you need to know is that if you are planning to buy the property thru traditional lending requirements, the guidelines are that you provide evidence of 12 monthly payments. Sounds like the seller is only willing to take on the six payments.

The second, is that if he does agree to a 1 year term then you NEED,BETTER, MUST record that option or the seller can encumber the the title by something as simple as getting another loan on the property or it could already be encumbered by something as simple as having a lien on the title. Recording the "Option" clouds the title and he/she would not be able to add other mortgages to it. BTW you don't need his/her permission to record it either, and you could also have a title company do a preliminary title search before you even sign the documents.

As for the extra payments, they don't really matter because over the course of the twelve months of payments the extra only adds up to the total extra amount the seller gets. Thru purchasing the property, if you exercise the option but nationally less than 18% do, lenders view the purchase under the refinance guidelines and the fees can be rolled into the loan. You are much better off by paying the lower rent amount, without the rent credits, and save that for the asset reserves you will need to get a loan.

Lastly, I can help you buy or lease any property and get all the tax benefits if you lease which is essentially getting a raise. All you want to do is us an Equity Holding Trust. Let me know if you need help and I will help you.