What Is a Lease Purchase?
LEASE PURCHASE (also called lease option) refers to a contractual arrangement between the tenant and landlord whereby the tenant rents the property, much like any other rental arrangement. The difference is that the tenant also has the GUARANTEED right or option to buy the property at an agreed upon price sometime during the rental period. The landlord MUST SELL the property to the tenant at the agreed upon price.
Benefits of Lease Purchase Housing
Depending on your particular situation, there are several advantages of a Lease Purchase house over a standard rental house:
- Lease Purchase allows you to move into your own house now, with a relatively small up front payment, even if you have credit problems that would keep you from buying a house. Once you are in the house, we work with you to improve your credit over the next year or two, so you can easily qualify for a good loan.
- The Lease Purchase program is a very powerful way to build your credit. Banks and credit agencies count your on time monthly payments in a Lease Purchase towards improving your credit score. They do not count standard rent payments.
- Once you have lived in the house for 1-2 years, we help you get a mortgage to purchase the house.
- A Lease Purchase home let’s you ‘try out’ an area or house before you are actually locked into a 30 year mortgage.
How to ‘Lease Purchase’ a House?
Lease Purchase is a simple process! The tenants and landlord sign a Lease Agreement with an Option To Purchase. Generally, the Lease Agreement on a Lease Purchase home differs from a standard Lease Agreement in 2 ways:
- There is an “option payment” paid to the landlord for the guaranteed, exclusive right to purchase the property during the lease term. The entire option payment is credited to the purchase price of the property when the tenant buys the property. This is similar to the down payment required on most home loans, but is generally less money. The down payment when one is getting a mortgage for a home is generally 20% of the purchase price. That would be $20,000 for a $100,000 home. Typical option fees range $3,000 to $7,000, depending on the home and your credit history.
- The Option To Purchase Agreement simply states that the tenant has the right to buy the property at a fixed price at the end of the lease period. This means you lock in today’s low price and can buy the property at that low price in the future when prices are generally higher.