Definition of Lease With Option to Buy a Home
Property owners and people seeking to buy a home can benefit from lease-purchase agreements. Such contracts give property owners another way to sell a house that has few or no purchase offers. People who are having a tough time saving enough money to buy a home can use a lease-purchase agreement to build up a down payment for a mortgage.
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Function
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A lease-purchase agreement allows a person to rent a home for a specific amount of time and then buy it shortly after the lease expires. The rental period often ranges from one to five years. The homeowner can't sell the property as long as the lease is in effect, unless the renter fails to make the required rental payments. The renter usually pays the property taxes, insurance and maintenance costs for the home as well.
Benefits
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People whose credit histories don't meet standards for getting a conventional mortgage can benefit from a lease-purchase contract. Making ontime lease payments can help them build up a good credit rating with the property owner. Furthermore, the renter will have a chance to size up the neighborhood where the home is located during the leasing period before buying the home. The property owner can benefit from having a long-term renter who takes care of maintaining the home. Lease-purchase agreements also provide another avenue for making money on a property and eventually selling it when the home-buying market is in a slump.
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Warning
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Part of the rent paid during the leasing period is typically held aside for the renter to use as a down payment for the mortgage and other expenses incurred to buy the home. However, if the renter decides not to buy the home after the lease expires, he may not have any of the money refunded to him that was set aside for the purchase.
Nonetheless, there is no standard lease-purchase agreement because regulations for such contracts vary from state to state. Therefore, renters and property owners should consult a real estate attorney before agreeing to a lease-purchase contract.
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References
- Photo Credit house image by Cora Reed from Fotolia.com
