Payment Agreement Contract Template
Selling with a lease purchase agreement or other type of rent to own contract offers a number of important advantages for both buyers and sellers of property, but it is important for sellers to consider which type of rent to own agreement will be best suited for their needs. There are three main types of rent to own agreements: lease purchase agreements, lease options and land contracts. Each of these works in a particular way and engenders a different type of commitment from the buyer. Property owners need to decide which option will be right for them.
Lease Purchase Agreements
Lease purchase agreements are typically the best for regular home sellers. A lease purchase agreement is a rent to own contract that commits the tenant/buyer to purchase the property before the end of the lease. This means that the seller has a guarantee that the property will be sold. Of course, sometimes things do not always work out as planned.
Lease purchase agreements are ideal for buyers who are certain that they want to buy the property in the future, but who may not be in a position to do so immediately. They can start living in the property as a tenant, but having signed a contract that requires them to buy the property within a certain time period.
Lease purchase agreements may specify the purchase price when the contract is signed, but they can also agree to sell at the current market value of the property when the purchase is completed. The tenant will usually be required to pay a deposit or option fee when they start renting the property. This may go towards the purchase price of the property. A portion of their monthly rent payments may also be contributed towards the purchase of the property, so that when they buy the house they will already have paid for some of it.
Although lease purchase agreements are usually the best option for normal home sellers whose goal is to sell their property, because they require the tenant/buyer to buy the property, there are other types of rent to own agreements that can be better suited to other types of property owners.
Lease options are similar to lease purchase agreements since they enable a tenant to start living in a property as a renter, but also enable the tenant to become a buyer and to buy their own home. However, there is a significant difference between lease options and lease purchase agreements. A lease option gives the tenant the exclusive right to purchase the home, so the property owner cannot sell it to anyone else while the term specified by the lease option contract is still open. However, the tenant is under no obligation to buy the property. They can choose to continue renting without purchasing the property.
Lease options can be very advantageous for the tenant since they do not need to commit to buying the property. They can buy their home if they want to, but they are also free to change their minds. With a lease purchase agreement, the tenant would not have this option and they would be required to buy the property.
From the seller’s perspective, this uncertainty may make a lease option less desirable than a lease purchase agreement. With lease options, the seller will have no guarantee that they are going to sell their property. If the tenant changes their mind, the property will remain in the seller’s hands and they will need to seek out another buyer if they want to get rid of the property. For most normal sellers, a lease option will not provide the certainty that they need. However, lease options can be a suitable option for sellers who are willing to continue owning the property if the tenant chooses not to buy it. It can be easier to find tenants for lease option agreements since they do not require such a big commitment.
Land contracts, which are also known as Bond-for-Title and Contract-for-Deed agreements are another option for property owners who want to make a rent to buy arrangement with their tenants. These types of contracts are not usually suitable for regular home sellers, although they can be a good option for some other types of sellers.
Land contracts are the most complex options and they require the most effort and input from the seller. They also require a major commitment from the tenant/buyer, in return for providing them with the most rights over the property. With a land contract agreement, the buyer actually has equitable title in the property.
In a regular sale, the buyer would take out a home loan or mortgage. They would use this money to buy the property from the seller. Ownership of the property would be transferred to the buyer immediately, but the property would be used as security for the repayment of the loan to the bank or mortgage lender.
Land contracts are a form of true long-term owner financing. The seller places themselves in the position of the bank providing financing for the buyer to purchase the property. The buyer does not take out a mortgage to buy the property outright. Instead, they agree to pay the seller in installments. It is usual for the buyer to make regular payments, usually with a larger initial deposit, and then to speed up repayment with a larger balloon payment at the end. This can help to speed up the repayment.
The seller agrees on a purchase price for the property with the buyer and then receives payments in installments. The seller does retain the legal title to the property, until the home has been completely paid-off. Once the full purchase price for the property has been paid, the title is transferred to the buyer.
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