The Center For Debt Management
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Guide To Understanding
Lease Purchase Contracts

A lease purchase contract (also known as Lease Option) is a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal to later purchase the home.

These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA or VA financing.

Under the typical terms, the tenant/buyer chooses the home and seeks a landlord/seller to serve as an investor. The tenant/buyer then agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. The tenant/buyer pays to the landlord/seller a non-refundable option deposit that is applied to the purchase price of the home. The tenant/buyer then pays to the landlord/seller a sum that is typical to the rental amount usually on a monthly basis, of which a portion of that monthly payment may or may not be applied to the purchase price of the home, but which normally covers the mortgage amount owed by the landlord/seller.

Should the tenant/buyer not wish or be unable to purchase the house, the tenant and landlord can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.


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