In its simplest form, a
lease purchase agreement is nothing more than a written contract to purchase real estate over an extended period of time, typically not exceeding 36 months. It is usually coupled with an agreement to allow the purchaser to occupy the house and pay rent on it while he is completing the purchase. I often consider using a lease purchase agreement when I’m thinking about how to sell my house to my tenants.
In contrast, a
lease-option agreement is primarily an agreement to rent real estate. That agreement contains a provision granting the renter the option of purchasing the real estate at some point in the future if he so chooses. So, if I enter into a lease option agreement with people who are moving into one of my houses, that means they have the right to buy the house within a certain period of time, usually the entire lease period, and if they make a decision to buy it, I have the obligation to sell it to them at the negotiated price. They pay an option fee for this privilege, usually a small amount upfront and sometimes another small amount added to their lease payment each month. Either way, I have to honor the agreement but they have the right to change their minds as regards buying the house, giving them the benefit of flexibility and time.
A lease purchase agreement on the other hand, obligates the purchaser from the first day of the agreement. It is a lease agreement that obligates the tenant to buy the house, and in fact he is already buying the house with his monthly payment, but he doesn’t take title to the house until it is fully paid-off. These days a lot of people are finding that they need to find a creative way to buy a house. A lease purchase agreement is certainly one of my suggestions to prospective tenants when I explain how to sell my house to them.
Traditional lenders have tightened underwriting guidelines and raised minimum credit standards, and there are lots of first-time buyers who have been pushed out of today's buying market. A lease containing an option to purchase may give the buyer enough time to get qualified and make the purchase he or she wants. And a lease purchase agreement, which is very different from a lease with an option to purchase, allows interested buyers to started buying the house right away.