First Home Facts

Fee Simple or Leasehold Agreement: Which Is Right for You?

One of the decisions you have to make when you are ready to buy a home is whether you want a fee simple or leasehold agreement. Both arrangements can be beneficial to you, but there are some distinct differences that could impact your ownership of the property you choose. If you are unsure which is right for you, here is what you need to know about fee simple and leasehold agreements.

Why Should You Opt for a Fee Simple Agreement?

Fee simple is basically complete ownership of a home. The home and the property on which it sits is yours. You not only own the home and its grounds, but you have air rights over your home.

If you decide to sell the property in the future, you have the right to do so without worrying about restrictions. You have the right to sell the home for the amount you determine and for the most part, you can sell the home to anyone that you want to.

It is important to note that although you have complete ownership of the property, the government still has some say about certain aspects. For instance, even though you can can sell to the person of your choice, you cannot discriminate based on race, gender, or any other protected status.

In addition to this, you are still required to pay taxes on the property and you could be subjected to local zoning laws. However, all of these are minor compared to the fact that you own your property.

Why Should You Consider a Leasehold Agreement?

A leasehold agreement functions somewhat differently than a fee simple agreement. Whereas you are the complete owner of the property under a fee simple agreement, with a leasehold, you only have ownership of the improvements on the land. For instance, the home sitting on the land would be considered an improvement. The seller would still retain ownership of the actual land.

There is another significant catch with a leasehold agreement. The land would be leased to you, which means at some point, your agreement would end. At that point, you would need to either renegotiate with the seller or buy the land outright.

If you have a limited amount of funds available to buy a home, this could be an ideal arrangement for you. You can use the duration of the lease to save up the money to buy the land. There is also the possibility that your mortgage lender will simply roll the cost of the land into your loan.

Before making a final decision regarding whether a fee simple or leasehold agreement is right for you, talk to your real estate agent.