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Lease Option – Another Way to Own a House

If you are interested in buying a house but you don’t have enough money to purchase it outright, then you might consider a lease option. A lease option or lease purchase stands for “lease with option to purchase.”

In residential real estate, a lease option has a contract between two parties, the tenant or lessee, the one who would occupy the house or apartment, and the landlord or lessor who is the one who owns the property. During the duration of the lease, the tenant pays the landlord in the direction of the value of the property, and is in turn granted the permission to reside in the property. Towards the end of the contract, the lessee has the option to buy the property outright usually through a mortgage.

Sometimes, the tenant might be asked to pay extra money to the lessor in excess of the typical market rent but this is not always the case. Extra credit may also be employed when the property will eventually purchased, or when the down payment for a mortgage is to be made. If this happens, the lease option becomes an automatic savings plan for the lessee. This is termed as an “option consideration fee.” In real estate, this is a fee which is charged for the right to buy the property.

 Who are the ones choosing to purchase through lease options? These are the people with a limited or poor credit history and could not qualify for a usual mortgage, or sometimes, investors who have used up their credit. The lease option may bring less risk for the lessor than a mortgage would for the one providing loans. If the tenant fails to pay, it is possible to evict them, which is cheaper than a mortgage property foreclosure. The lease option may also entail less money up front, in comparison to a mortgage which might need a large down payment from the tenant.

If the tenant fails to purchase the property at the end of the contract, then everything that the tenant paid is retained by the landlord. This may be the case if the tenant no longer wants to buy the property or is unable to get the financing required to purchase it.

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