What is a Rent-to-Own Lease Purchase?

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What is a Rent-to-Own Lease Purchase?

When talking about rent-to-own homes a "lease purchase" refers to a specific type of rent-to-own leasing contract which obligates the renter to purchase the home at the end of the lease.

If you're interested in purchasing a home but don't quite have the credit rating needed to qualify for a traditional mortgage, then a rent-to-own home is likely a good alternative option for you. As you explore the different rent-to-own options available you may run across some terms that are unfamiliar or confusing. Terms such as option fees, rent premiums, and lease purchases can be a bit confusing. In this particular article were going to explain a lease purchase in a little bit more detail. If you haven't read the What is a Rent-to-Own Home? article yet, then we recommend you do so before continuing.

Lease purchase contract terms

In a rent-to-own lease purchase contract, you as the buyer/renter would enter into a contract with the landlord/seller. In a lease purchase agreement, you and the seller set a specific period of time that you will lease the home prior to purchasing it. This lease period is negotiable and is usually anywhere from 1-5 years.

The lease period is not the only aspect of the contract that can vary. This could mean that your option fee may or may not go towards a down payment. It could also mean that your purchase price at the end of the lease could be set at a prior appraisal value or at a different appraisal value at the end of the lease. It is good idea to understand the terms and the clauses in rent-to-own contracts and do some negotiating before you sign on the dotted line.

Down Payments and Fees

Although the seller can require a fee and a down payment, in a lease purchase agreement there typically are not any fees involved up front. However, there can be a down payment involved. When a down payment is made in a rent-to-own lease purchase, the money is used at the end of the lease period and goes towards the down payment on the home for the purchase.

What happens when the lease is up:

In a lease purchase contract, when the lease period has ended, you have the obligation to purchase the home. During the lease period you should focus building up savings and your credit so that you can more easily qualify for a loan. If, for some reason, you were not able to build up enough credit or do not have enough money to purchase the home. You could forfeit any money that you've paid towards the down payment on the home.

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