Lease Purchase Agreements and Options
When you are in the market for a house, getting a traditional mortgage is not the only way that you can buy a home. Using a lease purchase agreement or a lease option is another avenue to homeownership -- even if you have poor credit. With this arrangement, you rent a property for a set length of time and then buy it.
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Lease Purchase Agreement
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A lease purchase agreement, as the name implies, involves both a lease period and a purchase agreement. The buyer in the transaction agrees to lease a property from the owner for a predetermined length of time. After the lease expires, the renter then buys the property from the owner. This gives the renter the opportunity to build up his credit while he is renting and then buy the home after the lease is up.
Negotiation
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Many of the terms in a lease option agreement are negotiable. At the beginning of the agreement, the buyer and seller agree on the future purchase price of the property. The two parties also agree on how much money will be charged in rent and the length of the rental agreement. Then the two parties also agree on how much the renter has to put down on the purchase of the property. This is known as the option money, and the seller gets to keep the option money regardless of what happens in the transaction.
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Advantages of Lease Purchase
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One of the primary advantages of the lease purchase option is that it gives the buyer the opportunity to lock in a low home price. Since you negotiate the terms of the agreement before the lease starts, the home value could increase substantially over that time. When you are ready to buy, the house could actually be worth more than what you'll pay. It also makes it possible for you to buy a house even if you have bad credit.
Drawbacks of Lease Purchases
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One of the potential disadvantages of a lease purchase is having to pay the option money and a rent premium to the owner of the property. This money is kept by the owner even if you decide not to buy the house when the lease expires. In some cases, the owner of the property may try to evict you and sell to someone else, which could violate your contract rights.
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