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
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