Option to purchase, lease purchase or lease option

All three sound a like but they are three totally different financing documents but before we jump in and sort it all out you should remember this one thing… Before entering into an agreement with a seller, buyers should obtain the advice of a real estate lawyer.

This information is an overview and by no way should replace the legal advice of an attorney.

In the late 70’s lease option sales were used primarily to get around alienation clauses (a lender clause that makes the loan due when sold).  The courts however ruled that it is not a lease but a purchase.

What is an Option ?

• Gives a buyer the option to purchase
• The money for the option is usually non refundable and the amount is negotiable
• The purchase price can be determined first or the buyer and seller can agree to a market value purchase price when the option is exercised
• The length of an option is typically 1year but this of course is negotible
• Buyer can sell his option to another person
• The buyer has the option to buy but the seller can not sell to anyone else during the option period
• If buyer decides not purchase at the end of the option period it expires.

 How about Lease Options ?

• Buyer pays money for an option to purchase the home at a later date
• Buyer and seller agree on a rental amount for the term of the lease
• The option money is rarely used as the down payment but typically part of the rent payment is
• Buyer usually can not assign the lease agreement to another person
• Buyer does not have to purchase the property

 What’s different about a Lease Purchase ?

• Buyer and seller agree to the purchase price before entering into the Lease Purchase
• As with the lease option parties agree to the lease and the rental amount
• Option money is nonrefundable
• Buyer is usually responsible for maintenance and upkeep of the home including insurance and taxes
• The buyer is obligated to buy the property before the option expires

Again I highly recommend hiring a real estate Attorney before entering into any of these options.