With the lease to purchase, the buyer pays the lease of the home. Within the lease agreement, the buyer purchases the home on the agreed price. Usually, the buyer purchases the home within one to three years. This financing is also called lease to own.
The buyer pays the purchase option fee of one percent to five percent. The purchase option fee will be credited to the purchase price when the buyer actually purchases the home.
On top of the lease, the buyer also pays the premium. The premium which the buyer paid will be credited to the purchase price of the home.
The buyers like the lease option very well. While the real estate market melts down, lease to purchase homes will always be in demand. The buyer needs very little security deposit or down payment.
Even though the buyer has bad credit rating, the buyer can purchase a home with lease to purchase. The lease to purchase can buy time for the buyer to repair bad credit rating. Finally, the buyer will be approved for the mortgage financing.
However, the credit bureau excludes the lease in the credit score calculation. The meaning of credit score is the ability for the buyer to pay the loans and mortgage. The financial institution uses the credit score to qualify the buyer to mortgage financing. In order to repair bad credit rating, the buyer must continue to pay off the credit card and loans.
While the buyer is on the lease, the seller gets to deduct the mortgage interest. Apparently, the mortgage interest tax deduction significantly benefits the seller. The mortgage interest is substantial portion on the mortgage payment.
The lease to purchase locks the price of the home. Thereby, the buyer can build home equity as the home appreciates in value. As the home depreciates in value, the buyer can walk away without purchasing the home. Hence, the buyer loses the purchase option fee, and premium as well.
As the buyer likes the lease to purchase, the real estate agent dislikes the lease to purchase. Because the real estate agent only gets a part of the commission at the start, the real estate agent dislikes the lease to purchase. In the time of real estate market crashes, it is better than nothing.
Many buyers like to try before they purchase. In lease to purchase, the buyer can try the home. If the home is cut to be the dream home, the buyer can complete the sale of the home.
Basically, the buyer loses a smaller amount for unwanted home. Rather than paying huge amount to purchase a home, the buyer only loses the lease, purchase option fee, and premium.
The buyer can grow the home equity faster. In a regular rent, the buyer loses one to three years to build equity. With one to three year in a lease to purchase, the home can appreciates in value. In time, the home and land will appreciate in value. The value may decrease, but it will eventually increase in value.