What Is a Leasehold Mortgage in Real Estate?

Found the perfect home, but there's a catch: it's sitting on leased land. Before you walk away, here's what you should know. A leasehold mortgage might be exactly what you need, and yes, we offer it.

So, What Exactly Is a Leasehold?

A leasehold is a homeownership setup where you buy and own the house itself, but another party (called the lessor) owns the land underneath it. As part of the arrangement, you enter into a long-term lease agreement for the use of that land and pay a recurring "ground rentThe regular payment a leaseholder owes to the freeholder under the lease, which lenders consider when evaluating the loan.ground rentThe regular payment a leaseholder owes to the freeholder under the lease, which lenders consider when evaluating the loan.."

It sounds a little unconventional, but it's more common than you might think, and it doesn't have to stand between you and the home you love.

What to Look for Before Making an Offer

Not every lease will qualify for financing, so it's worth doing a little homework before you fall in love with a property. Here are a few things to review in the lease agreement:

• Lease length: Make sure the remaining term is long enough to meet the requirements for your loan type (more on that below).

• Ground rent terms: Understand what you'll owe, how often payments are due, and whether that price can increase over time. Some leases include escalation clauses that can raise your ground rent periodically, which affects your monthly budget and could impact your debt-to-income ratio during the loan approval process.

• Renewal options: Check whether the lease can be renewed and under what conditions. A lease without a clear renewal path can create complications for your long-term plans.

• Lender approval language: Some leases include restrictions that make them harder to finance. Your mortgage banker can help you spot potential red flags early.

A Quick Note on Taxes

Ground rent is not tax-deductible the same way mortgage interest is. It's one of those details that catches so many buyers off guard, so it's worth factoring into your overall budget picture before you move forward.

How Does the Lease Term Affect Your Mortgage?

The lease on your land must last significantly longer than your mortgage. Why? Because it protects your right to stay in your home long after your loan is paid off. The specific requirements depend on your loan type:

• Conventional Loans require the lease to run at least 5 years beyond your mortgage maturity date.

• FHA loans require at least 10 years beyond your mortgage maturity date.

• USDA Loans require at least 15 years beyond your mortgage maturity date.

• VA loans require VA Prior Approval, and that's a process our team knows how to navigate right alongside you.

Our Financing Is Built to Make This Work for You

We can’t stress this enough: not all lenders offer leasehold financing. And we've structured it to keep homeownership within reach:

• Max LTVA loan-to-value (LTV) ratio is calculated by dividing your loan balance by your home’s appraised value. Its purpose is to provide a comparison between the value of the loan you are seeking to take out versus the actual value of your home.LTVA loan-to-value (LTV) ratio is calculated by dividing your loan balance by your home’s appraised value. Its purpose is to provide a comparison between the value of the loan you are seeking to take out versus the actual value of your home. / Min. Down Payment: 97% LTV / 3% Down Payment*

• Credit Score: Minimum 620

• Max Loan Amount: $806,500* (and higher in certain counties)

• Occupancy: Primary Residence Only

• Mortgage Insurance: Standard MI coverage applies, which is actually lower than the typical manufactured home MI rate

*To be eligible for 97% financing, at least one borrower must be a first-time homebuyer. Maximum loan amount may be higher in designated high-cost areas. Loan eligibility depends on the property, lease terms, and location.

Considering the Long Game

A leasehold home can be a wonderful place to put down roots, but it's smart to think ahead. When it comes time to sell, your buyer will face the same lease requirements you did. That means a shorter remaining lease term could narrow your pool of future buyers or complicate their financing options. Keeping an eye on the lease timeline now can save you headaches later, and it's exactly the kind of thing we'll walk through with you so you feel prepared every step of the way.

Let's Find the Right Path Forward, Together

A leasehold situation can feel complicated, but it doesn't have to feel overwhelming. Our team is here to walk you through every detail, answer every question, and make sure you feel confident from your first conversation to closing day.

Ready to get started? There's no obligation and no pressure. Take the first step on your own terms by getting pre-qualified. Your home is out there, and we'd love to help you make it yours.