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A Lease-Purchase Contract, also known as a lease purchase agreement or rent-to-own agreement, allows consumers to obtain durable goods [1] or rent-to-own real estate [2] without entering into a standard credit contract. [1] It is a shortened name for a lease with option to purchase contract.
In real estate, the term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to 150,000 or $130,000 / $150,000 , or 87%.
Rent-to-own, also known as rental purchase or rent-to-buy, is a type of legally documented transaction under which tangible property, such as furniture, consumer electronics, motor vehicles, home appliances, engagement rings, and real property, is leased in exchange for a weekly or monthly payment, with the option to purchase at some point ...
the lessee will pay a series of rentals or installments for the use of that asset; the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee; the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price).
If the monthly rent is $2,000, that totals $24,000 per year. To determine the rent ratio, divide $400,000 by $24,000. This calculation results in a rent ratio of 16.7.
Closed-end leases are not used for property which increases in value. In most cases, when a closed-end lease is entered, the lessor does not already own the property being leased. Rather, the lessor agrees to purchase the property for a certain amount (the "capitalized cost") from a third party, such as a car dealer. The lessee will often be ...
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