Lease purchase contract
Encyclopedia
A lease purchase contract is a shortened name for lease with option to purchase contract. It is a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal
to later purchase the home.
These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA
or VA
financing.
Under the typical terms, the tenant
/buyer chooses the home and seeks a landlord/seller to serve as an investor. The tenant/buyer then agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. 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, of which a portion of that monthly payment may or may not be applied to the purchase price of the home, but which normally covers the mortgage amount owed by the landlord/seller.
Should the tenant/buyer not wish or be unable to purchase the house, the tenant and landlord
can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.
Lease purchase and lease option could be considered different where a lease purchase uses a purchase agreement and a lease option may not and an option is a unilateral contract and a purchase agreement is typically a bilateral contract.
Right of first refusal
Right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party...
to later purchase the home.
These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA
FHA
FHA may mean:* Federal Housing Administration. See also FHA loan.* Federal Highway Administration* Civil Rights Act of 1968 -- In particular, Title VIII of the Act, also known as the Fair Housing Act* Forced Hot Air heating...
or VA
United States Department of Veterans Affairs
The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...
financing.
Under the typical terms, the tenant
Leasehold estate
A leasehold estate is an ownership of a temporary right to land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord....
/buyer chooses the home and seeks a landlord/seller to serve as an investor. The tenant/buyer then agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. 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, of which a portion of that monthly payment may or may not be applied to the purchase price of the home, but which normally covers the mortgage amount owed by the landlord/seller.
Should the tenant/buyer not wish or be unable to purchase the house, the tenant and landlord
Landlord
A landlord is the owner of a house, apartment, condominium, or real estate which is rented or leased to an individual or business, who is called a tenant . When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner...
can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.
Lease purchase and lease option could be considered different where a lease purchase uses a purchase agreement and a lease option may not and an option is a unilateral contract and a purchase agreement is typically a bilateral contract.
See also
- Rent-to-own, the analogous contract for durable consumer goods