Lease Option: Definition And How It Works

If you’re considering buying a home but are not yet ready to commit, you may wonder if getting a lease with the option to buy will be the best of both worlds.

A lease option is a type of contract that can offer some additional flexibility as you decide whether you should buy or rent, but it isn’t always the best choice for everyone. Let’s go over what a lease option is, how it works and the factors to consider when deciding if it’s the right move for you.

What Is A Lease Option?

A lease option, also known as a lease with the option to buy, is a real estate contract that gives renters the opportunity to buy the property once the lease term is up. As part of the contract, the renter pays an option fee upfront for the chance to purchase the property. Part of the rent will include additional monthly fees toward the down payment.

A lease option also prevents the property owner from selling it to anyone other than the tenant during the lease term. Should the renter forfeit the option to buy at the end of the lease term, they lose the option fee and any money put toward a down payment.

Lease Option Vs. Lease Purchase Agreement

A lease purchase agreement differs from a lease option because it requires both parties to follow through with the sale at the end of the lease. With a lease option, the renter isn’t obligated to follow through with buying the property.