What Is A Lease Purchase Mortgage?
Wondering what is the best lease purchase mortgage definition?
A lease purchase mortgage is a financing option that allows potential homebuyers to lease a property with the option to buy that very property at the end of the set term.
Rent-to-own properties come in two forms: a lease option and a lease purchase. While the former gives the Tenant the option but not the obligation to buy the home, a lease purchase mortgage can legally obligate you to buy the property at the end of the term, whether you have the money to do it or not.
With it, Tenants pay the monthly rent, which covers the owner's first mortgage payment plus an additional amount – typically deposited in an escrow account - as a savings deposit to accumulate cash for a down payment. Lease purchase mortgage typically last 2 to 3 years, after which the Tenant pays up the rest of the house and becomes the actual homeowner. Lease purchase mortgages are usually given to home buyers with poor credit score and/or to home buyers who are pending on the sale of their own home, so they need the time to collect the money and pass it forward.
The lease purchase mortgage is great for the home buyer but why would a home seller agree to a lease purchase mortgage?- you ask.
Well, if the housing market is saturated and they are having difficulty selling the property, this might be a way to attract home buyers that wouldn’t qualify for a regular mortgage. The home seller will still get the money in the end and in the meantime will, at least, have the rent income.
Real Estate Advice:
The legal terms can sometimes be tricky. Not to mention that certain aspects change from state to state. Have a local real estate agent review the contract when you sign your rent-to-own contract to make sure you are signing a lease option contract - if that’s the case - and not a purchase mortgage agreement.
Popular Mortgage Questions
Popular Mortgage Glossary Terms
The party who services a loan, who may or may not be the lender who originated it. ...
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure. ...
A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment or a specified number of ...
A revers mortgage program administered by Fannie Mae. ...
The largest loan size permitted on a particular loan program. For programs where the loan is targeted for sale to Fannie Mae or Freddie Mac, the maximum will be the largest loan ...
Same as term Qualification: The process of determining whether a prospective borrower has the ability to repay a loan. ...
Insurance provided the lender against loss on a mortgage in the event of borrower default. In the U.S., all FHA and VA mortgages are insured by the federal government. On other mortgages, ...
Acceleration Clause is a contractual provision inserted in a mortgage, a bond, a deed of trust or other credit vehicles, that gives the lender the right to demand repayment of the ...
Refinancing that omits some of the standard risk control measures and is therefore quicker and less costly. The rationale for streamlined refinancing is that, while it is an entirely new ...
Have a question or comment?
We're here to help.