A lease purchase agreement is frequently used to make it easier for the seller to sell a home that is not very easy to sell, i.e. hard-to-sell properties. For the buyer, it is sometimes beneficial because it is an easy way to gradually enter in to a home ownership status. The purchase works through a series of steps.



First, the buyer pays the seller a purchase deposit in return for the right to purchase the property at a later date. The deposit is usually a substantial sum but typically less than the buyer would need for a down payment on a new home loan. The purchase deposit for lease purchase is always non-refundable. So no matter what happens, the seller gets to keep this money. The purchase deposit typically counts towards the purchase price.

After this, the buyer and the seller come to an agreement about the price at which the property may be purchased. This is usually done at the current market value or slightly higher than the market value. Then, the buyer agrees to lease the property from the seller during the term of the agreement. The rent amount is predetermined at this point. The lease rental money usually has a portion of it going towards the final purchase of the property.

The full term of the lease purchase agreement is always negotiable and there are no fixed standards for it. However, it is generally at least one year and at the most three years in length. At the end of this period the buyer is obligated to pay the full amount to the seller as agreed in the contract. The buyer usually does this by applying for financing with a bank.

After the agreement has been made, no one but the buyer can purchase the property. This right is only revoked if the buyer defaults under the terms of the agreement. Buyers are also often responsible for the cost of the upkeep of the property and this may include payments in lieu of taxes or insurance. The ultimate aim of the agreement is that they buyer is legally required to purchase the property and the seller is required to sell the property.

For buyers, this may not sound like a very cost-effective deal but the usual expectation is that the property will appreciate in value in the coming years. Additionally, there is the benefit of the smaller down payment, with simpler qualifying than the bank would require. So it is an easy way to get in to the benefits that come from home ownership. The agreement may also be seen a saving plan because a potion of the rent going into the final purchase amount.

For sellers, it is a good way to get the market price for a property that is hard-to-sell. Additionally, they are relieved of paying mortgage on properties that are lying vacant. Once the agreement is made, the buyer is obligated to buy. And if the buyer defaults, then the seller may keep all the lease payments made, plus the deposit money.