Lease with Option to Purchase

A lease with an option to purchase is usually created for alternative financing when a person wishes to purchase the property but does not have sufficient down payment, or may not have sufficient credit to obtain a mortgage to purchase the property. The lease sets forth the terms of the rent and responsibilities of the tenant and landlord. The option states the purchase price of the property and for what period the tenant has in which to purchase, which is usually the term of the lease. If the option is not exercised during the term of the lease, the option expires. The tenant is usually required to pay option money when a lease with an option to purchase is signed. The option money is not refundable, though it will usually apply to the purchase price. Residential options to purchase may apply a portion of the rent payment to the purchase price. A decision needs to be made as to what amount of the rent would be applied to the purchase option price. This evaluation includes what sort of interest rate the landlord would charge in the event the landlord was to hold a mortgage, as well as how much the taxes and insurance are. Once this has been evaluated, the amount, if any of the rental payments can be credited to the purchase price.