What Is Lease To Purchase Homes?


What Is Lease To Purchase Homes?Lease to purchase homes are homes that give you the option to buy the house after a certain period, usually you are required to buy the house after 3 years or so.

These type of homes came into the market after the 2007 to 2008 financial market crush because most home buyers could not meet the tougher loan requirements that most lenders wanted. This also created quite a number of sellers in the market since the demand of houses had in turn plamented.

What Is Lease To Purchase Homes

A lease to purchase home which is also known as rent to own homes is a rental property with a lease that is combined with an option to buy the property after a period mostly it’s after 3 years.

This is at an agreed upon price. If you and the landlord who is the seller of the house agree on 120,000 as the price of the house and in three years the value of the houses in the area increase to 200,000, you still get to buy the house at $120,000.

Lease to purchase agreements are great if you are working on improving your credit, if your credit score is low and you have decided to work on repairing you credit those 3 three years before you buy that house will give you time to do so.

It is always advisable to always get pre approved for a mortgage if you are going to sign a lease to purchase agreement.

The Option Fee and Rent Premium

The option fee and the rent premium may not be part of the down payment unless the seller tells you otherwise. The option fees can only make the down payment smaller.

Lets take for instance you are looking to buy a $200,000 house and the option fee and the rent premium add up to $10,000 when the option is exercised, from the lender’s standpoint the price is $190,000 and the 3.5% down payment could be $6650 instead of you paying $7000.

The option fee is often negotiated as there is no standard rate. It rages from 1% – 5% of the purchase price of the home you are looking into buying.

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