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
Same as term Interest Rate: The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A mortgage interest rate is a rate on a loan secured by a ...
The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees. Housing expense is sometimes referred to as PITI, standing for principal, ...
USDA loans are a form of government-backed financing for both first-time home buyers and move up buyers looking for a second or third property. These loans have little to do with ...
A mortgage lender that sells all the loans it originates in the secondary market. ...
A biweekly mortgage on which biweekly payments are applied to the balance every two weeks, rather than monthly, as on a conventional biweekly. ...
A second mortgage on a property that is not paid off when the first mortgage is refinanced. The second mortgage lender must allow subordination of the second to the new first mortgage. ...
A clause in the note that allows the lender to demand repayment of the balance in full. A demand clause is even better (for the lender) than an acceleration clause. An acceleration clause ...
A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index. Dual index mortgages are not written ...
A lender who specializes in lending to sub-prime borrowers. ...
Have a question or comment?
We're here to help.