Is There A Difference Between A Lease Option And Lease Purchase?
June 30, 2022
When you buy a home in Illinois with rent-to-own financing, you’re actually using one of two different types of financing: lease purchase or lease option. While both are forms of rent-to-own transactions, they differ in the amount of money required upfront and how the payment schedule is structured.
Lease purchase is the most common type of rent to own transaction. With this option, you agree to make monthly payments for a set period, usually one year, but don’t pay all your down payment at once. Instead, you make monthly installments that cover both your down payment and your regular monthly payments (which usually include mortgage interest). At the end of this term (called an “option period”), if all goes well and everything goes according to plan, and if there aren’t any major problems with your credit history, you can then proceed through closing on your home loan in order to officially become its owner! If not…well…back on Craigslist it goes!
Lease options are another form of rent to own homes in Illinois where instead of making ongoing monthly payments while waiting for an option period date like above, buyers pay upfront but only receive title after paying double what they’ve already paid (e.g., $10k upfront = $20k total after payoff). This means buyers need less time before being able to start earning equity since their initial investment was lower than other types without losing out on as much equity potential later on when buying/selling later down road perhaps?
How much is the option fee?
This is the fee you’ll pay for reserving the property. It’s typically 1-3% of the purchase price, and it’s refundable if you don’t buy the home. The option fee is usually also paid in cash at closing, which means that it can be used toward your down payment or toward closing costs that are required when buying a home with Rent-to-Own financing.
That said: The option fee isn’t always refundable if you buy your home through this program; some companies will charge nonrefundable option fees if they think their properties are particularly desirable or won’t last long on the market (they want to lock up buyers who want those homes).
If an option fee ISN’T refundable and YOU decide not to buy this house after all… then all that money goes right down into THEIR pockets!