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A lease purchase contract is a shortened name for lease with option to purchase contract. It is a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal to later purchase the home.
These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA or VA financing.
Under the typical terms, the tenant/buyer chooses the home and seeks a landlord/seller to serve as an investor. The tenant/buyer then agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. The tenant/buyer pays to the landlord/seller a non-refundable option deposit that is applied to the purchase price of the home.
Should the tenant/buyer not wish or be unable to purchase the house, the tenant and landlord can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.
Lease purchase and lease option could be considered different where a lease purchase uses a purchase agreement and a lease option may not and an option is a unilateral contract and a purchase agreement is typically a bilateral contract.