A few days ago a couple walked into our information center here at Derbyshire and asked if we had any homes that were available as a Lease Purchase. It was a great question and one that we have been getting more often over the past few years. In this article, we will explore Lease Purchases for real estate from both the buyer and seller’s perspective.
Buying a home using a Lease Purchase option agreement has been around for a long time. In its simplest form, a Lease Purchase is an agreement that combines a basic lease agreement with an option to purchase agreement. The buyer does not take legal title to the property in the beginning but rather purchases the property, in parts, over a specified period of time from the seller.
There are many benefits to structuring a Lease Purchase agreement for both buyers and sellers. There are also pitfalls you need to be aware of. While Lease Purchases are definitely a minority of all real estate transactions in the United States, they can be very beneficial to both parties if they are structured properly.
For a buyer, a Lease Purchase means not having to go through the daunting process of obtaining a traditional mortgage loan from a bank. Buyers who may not be able to qualify for a conventional loan due to a credit issue sometimes look for Lease Purchases because they have good income but simply cannot find a bank willing to lend to them because of their credit score or other issue. Buyers can negotiate the terms of a Lease Purchase agreement with the seller which is something that almost never happens with a traditional mortgage loan. Lastly, if the buyer was unable or unwilling to move forward with the purchase portion of the agreement he or she typically will not suffer damage to their credit report because the agreement was set up initially as a lease, therefore, in many respects the buyer is just “renting