What is a "lease option" in real estate?

A lease option in real estate is a unique arrangement that gives a tenant the right to purchase the property after a specified lease period. This arrangement typically involves a lease agreement coupled with an option contract that stipulates the terms under which the tenant can buy the property.

The benefit of a lease option for the tenant is that it allows them to occupy and rent the property while also securing the potential to purchase it at a predetermined price. This can be particularly advantageous in a rising real estate market where property values are increasing, as it locks in the purchase price during the lease term.

In addition, a portion of the rent paid during the lease period may be credited towards the purchase price, further incentivizing the tenant to make the purchase. This arrangement can serve various purposes, including allowing tenants to improve their credit or save for a down payment while still living in the home they intend to buy.

The other options do not accurately capture the definition of a lease option, as they either describe standard rental agreements, financing mechanisms unrelated to the specific context of lease-to-own situations, or processes for lease renewal, which do not necessarily involve any purchase rights.