lease purchase
As you probably expected, a lease-purchase contract is a less flexible version of a rent-to-own deal. Buying a home after the lease term is over is a pre-determined agreement. This may also include the purchase price. If you are searching for a rental to real estate program, be sure you know whether it is a lease-option or lease-purchase.
Sometimes the complex legal details of these contracts can be confusing. You may be legally bound to buy the home at the end of the lease – whether you can afford it or not. It is always a good idea to seek the advice of a qualified real estate lawyer before signing a rental deal.
when the lease ends
Depending on the type of rental ownership agreement you choose, you have a few different options when the lease expires. If you signed a lease-option, you absolutely have the ability to walk away from it. Maybe you haven’t been able to save up your down payment or qualify for a mortgage yet. This would mean that your dream of buying a home would get delayed.
On the other hand, you may have signed a lease-purchase agreement. That is, now you have to buy a house. Hopefully, you were already aware of this obligation and you must be preparing for it. This means shopping around for an affordable mortgage in order to get the necessary funds to complete the purchase. Qualifying for a mortgage is very different from getting approved as a tenant, so make sure your finances are in good shape for this step.
purchase price
If you’ve been paying attention to the housing market lately, you know that prices can rise and fall rapidly in short periods of time (but mostly based on recent trends). When it comes to setting the purchase price of a home in a rent-to-own agreement, there are a few additional wrinkles involved. For example, there may be a lease term of several years at the beginning of the deal. The appraised value of the house on day 1 may not be the same on day 365. (Or at the end of two, three, or five years, for that matter).
Your rent to own agreement should clearly spell out how and when the price of the house will be determined. In some cases, the sale price is determined at the signing of the contract. This is often higher than the current-market-value, as the deal assumes that the value of the home will increase during the term of the lease. In other cases, the sale price is to be determined at the end of the lease term, based on market value at that time. There is a bit of risk involved with either option, as you never really know what the housing market will do. However, there is peace of mind for buyers who can “lock-in” the purchase price at the beginning of the lease term. That way they know exactly how much they need to budget when it comes time to buy.
