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 specific interest rate series to which the interest rate on an ARM is tied, such as 'Treasury Constant Maturities, One-Year,' or 'Eleventh District Cost of Funds.' ...
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 on which all settlement costs except per diem interest and escrows are paid by the lender and/or the home seller. A no-cost mortgage should be distinguished from a ...
A mortgage broker who sets a fee for services, in writing, at the outset of the transaction and acts as the borrower's agent in shopping for the best deal. Customers of UMBs pay the ...
The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in qualifying borrowers may or may not be the initial rate on the mortgage. On ...
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, ...
Limit on the size of payment change on an adjustable rate mortgage. ...
The sum of all interest payments to date or over the life of the loan. This is not a good measure of the cost of credit to the borrower because it does not include upfront cash payments and ...
Also called variable or flexible rate mortgage, an adjustable rate mortgage (ARM) is a mortgage where the interest rate is not constant, but changes over time by the mortgage lender. ...
Have a question or comment?
We're here to help.