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What is a Lease Purchase Contract?

A Lease Purchase is essentially another name for a Lease Option or Rent 2 Own. It is a purchasing technique. It is actually a creative financing technique that enables property owners to sell their homes quickly for full Fair Market Value.

Many lenders are considering lease options as a sale which means the tenant buyer can get a refinance loan rather than a purchase loan when they exercise their option to buy. This allows the tenant buyer to take advantage of any appreciation in the homes value during the term of the agreement. Therefore they will not have to come up with as much down payment to purchase the home when they exercise their option.

A lease purchase contract combines a basic lease contract with an option-to-purchase contract. A Lease Purchase is a lease for a fixed period of time with an option to purchase the property on a future date. The price of the property is usually agreed upon at the inception of the agreement. With a Lease with Option to Purchase, the tenant has the right, but not the obligation, to purchase the property.

This Lease Purchase Contract should be divided into two separate agreements; a Lease agreement and an Option agreement. Many items have to addressed, such as disposition of deposits if the option is executed, and disposition of deposits if the Option is NOT executed.

When a renter signs a lease with an option to purchase that property for a specific price within a certain time frame, that is called a lease purchase. The renter is called a tenant buyer. In most lease-purchase situations, a portion of the rent is applied to a future down payment.

Lease purchases are most popular among buyers who don't have enough funds for a down payment and closing costs.

The tenant/buyer pays to the landlord/seller a non-refundable option deposit that is applied to the purchase price of the home. The tenant/buyer then pays to the landlord/seller a sum that is typical to the rental amount usually on a monthly basis. A portion of that monthly payment is then applied to the purchase price of the home. 

During, or at the end of the lease period, the tenant/buyer has exclusive right to buy the home under the terms to which both parties have previously agreed.

In other words, Lease + Option to Purchase = Lease Purchase


FAQ: Lease Purchase Contract (HERE)


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