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Lease to Purchase Agreement: What are its characteristics?

Lease to Purchase Agreement is signed between a buyer and a seller, where the buyer pays option money to the seller in order to purchase the property. The option money can be a substantial or an insignificant amount. Though the term of the Lease to Purchase Agreement is negotiable, yet the common length usually varies between 1 to 3 years. The agreement serves a significant purpose; by signing it, the buyer becomes obligated to purchase the property. The buyer often locks in the future purchase price while signing the agreement.

Required information

The agreement requires the following information

  • Name of the buyer
  • Name of the seller
  • The address where the property is located
  • Legal description of the property
  • The loan amount
  • The rate of interest on the loan
  • Total payable amount (Principal + Interest)
  • Amount payable in each month
  • The date within which the buyer need to pay the monthly amount
  • The amount of purchase price
  • The amount of additional payment
  • The name of the State where the buyer/buyers belong to
  • The name of the County where the buyer/buyers reside

Apart from providing the above information, the Notary Public needs to sign the agreement in order to make the transaction valid.

Lease to Purchase Agreement – Its characteristics

A Lease to Purchase Agreement is beneficial for both the buyer and the seller. The characteristics of the agreement are described below.

  • Buyers can gradually become homeowners by making an initial small down payment.
  • Usually, sellers get the current market value and they are also saved from paying a mortgage on a vacant property.
  • Seller usually doesn’t refund any portion of the lease payments or the option money if the buyer defaults on the payment; moreover, the seller has every right to sue the buyer if he/she defaults on monthly payment.
  • Buyers generally receive a forced savings plan as the lease payment is usually credited toward the purchase price at the completion of the Lease to Purchase Agreement.

It is advisable that you take help of a real estate lawyer regardless of whether or not you’re buying the property. A lawyer can explain the rights and the consequences that a buyer will face if he/she defaults on the payment. A lawyer can also help to fill out the agreement with accurate information.