Lease-purchase vs. lease-option
Rent-to-own transactions are separated into two very distinct categories: lease-purchase agreements and lease-option agreements.
Lease-purchase agreement â€“ In a lease-purchase agreement, the buyer and seller agree on a purchase price. This is typically at market value, if not slightly above. The option money may be a substantial amount, and is nonrefundable. During the lease period, the occupant is often responsible for maintaining the property. At the end of the lease period, the buyer secures bank financing in order to pay the seller the full purchase price. Again, in lease-purchase agreements the buyer is obligated to purchase the home.
Lease-option agreement â€“ The buyer and seller may agree upon a purchase price at the time of the agreement, although in some cases the buyer may agree to pay market value at the end of the lease term (most buyers prefer to lock in the purchase price at the onset of the agreement). Lease-option agreements often require a lower option money amount, although this typically is still non-refundable and usually does not apply to the purchase price. At the end of the lease period, the buyer can choose to exercise their option to purchase the property. If they choose not to do so, the option expires