Lease Options and Lease Purchases are becoming more and more common. It is very important that one understands both these terms properly in order to make sure they know what they are getting themselves into and which one best suits your situation.
We are first going to look at how a Lease Purchase is different from a Lease Option.
If you have been in the real estate business or have read various articles online in regards to leasing, you may be aware that both these terms have been used interchangeably when in actual fact they are completely different
If you look at a lease option, this is more ideal for the tenant. With a lease option, you have the option of buying the property you are living in. You are not, however, required to do so. The seller is required to sell to you should you decide to exercise your option. Also, the seller may not sell the property to anyone else until your option has expired.
In comparison to this, a lease purchase is quite different. In this circumstance, the tenant of the property would be required to buy the property before the agreement expires. A lease purchase is a mutual agreement therefore which both parties are expected to complete their part of the deal.
Both Lease Options and Lease Purchases are commonly used by people who can not qualify for a mortgage, but would like to own a home.
Sellers use them when they would like to sell their home quickly, but are unable to do so due to the current real estate market. Both Lease Options and Lease Purchases have their benefits for sellers.
With a Lease Purchase, the benefit is obvious. The tenant-buyer is required to purchase the home at the end of the contract period. Psychologically, this is far more attractive for someone who would like to sell their home.
A Lease Option may actually provide more protection for the seller however. The reason for this is that a Lease Purchase conveys what is called equitable interest to the tenant-buyer.
This means that in the event of default, the seller would have to go through the judicial foreclosure process and then the eviction process rather than just the eviction process. This foreclosure process can add six months or more to the time that it would take to remove the tenant from the property. During this time, the tenant is living in the property without making payment and the seller still has to make the mortgage payment on the property. For this reason, many sellers choose a Lease Option contract over a Lease Purchase.
It is very important that you understand the difference between both a lease option and a lease purchase before you enter into a contract. All too often, people sign contracts that they don’t really understand.
By understanding the basic differences between a Lease Option and a Lease Purchase, you can determine which contract structure is right for you. This is essential in making the best decision for your financial future.