What Is A Lease Purchase Mortgage?

Definition of "What is a lease purchase mortgage?"

James "Jim" Maurno real estate agent

Written by

James "Jim" Maurnoelite badge icon

Weichert, Realtors

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Questions

Popular Mortgage Glossary Terms

A lender who offers mortgage loans directly to the public. ...

The dollar amount of interest paid each month. The interest payment is the same as interest due so long as the scheduled mortgage payment is equal to or greater than the interest due. ...

A mortgage loan for 125% of property value. Since such loans are only partly secured, they have many of the characteristics of unsecured loans, including relatively high interest rates. ...

Rates and points quoted by loan providers. You cannot safely assume that mortgage price quotes are always timely, niche-adjusted, complete, or reliable. Timeliness: Most mortgage lenders ...

You’ve certainly heard a lot about Credit Score and might even have a general idea about its meaning, but if you came to this page you still have some doubts about what is a credit ...

A comprehensive and time-adjusted measure of loan cost to the borrower. IC on a Mortgage: IC is what economists call an 'internal rate or return.' It takes account of all payments made by ...

Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's Qualification Requirements and also its Underwriting Requirements. In some cases, ...

The amount the borrower owes at maturity. ...