Definition:
A lease-purchase option is an agreement where a tenant rents a home with the option—and often the obligation—to buy it at a later date, usually within a set timeframe and at a predetermined price.
Example:
Jake isn’t ready to buy a home today but wants to in the near future. He signs a lease-purchase option with the seller, agreeing to rent the home for one year with the option to purchase it for $350,000 at the end of the lease.
Explanation:
In a lease-purchase option, the buyer (tenant) and seller agree upfront on the terms of both the lease and the future purchase. This includes the purchase price, lease duration, and how much of the monthly rent may be credited toward the down payment or purchase.
Typically, the tenant pays:
- Monthly rent
- An option fee (usually non-refundable), which gives the tenant the right to buy the property later
- Sometimes, a portion of each month’s rent goes toward the purchase price
Unlike a lease-option agreement (which gives the renter the choice to buy), a lease purchase usually includes a commitment to purchase the home when the lease ends.
This arrangement benefits tenants who need time to build credit, save for a down payment, or resolve financial issues before getting a mortgage.
Why is Lease-Purchase Option Important in Real Estate Transactions?
A lease-purchase option is important because it provides a path to homeownership for buyers who aren’t yet financially ready. It can lock in today’s price and allow time to prepare for a mortgage. For sellers, it helps attract serious renters who are likely to become buyers. Understanding this option can open doors for both parties to complete a home sale with more flexibility and less risk.