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
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, ...
The federal law that specifies the information that must be provided to borrowers on different types of loans. Also, the form used to disclose this information. Truth in Lending (TIL) is ...
The provision of the U.S. tax code that allows homeowners to deduct mortgage interest payments from income before computing taxes. Points and origination fees are also deductible, but not ...
A mortgage loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around can be attractive to home sellers because they may be able to sell their ...
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ...
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 ...
The upfront and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of monthly, annual, and upfront ...
A mortgage Web site designed to provide leads to lenders. A 'lead' is a packet of information about a consumer in the market for a loan. Lenders pay for leads, and these sites are an ...
The definition of a reverse mortgage is important for homeowners 62 and older who want to supplement their retirement income. What exactly is a reverse mortgage? Some say that it is the ...
Have a question or comment?
We're here to help.