2026-10-22 · 4 min read · Orange County
What Is the Difference Between Leasehold and Fee Simple When I Buy?
The short answer
With fee simple, you own the home and the land under it. With leasehold, you own the home, yet you lease the land from someone else for a set number of years, usually with ground rent. Leasehold can change your monthly costs, your loan options and what happens when the lease ends. If a listing says leasehold, read the ground lease with an attorney and confirm your lender will finance it before you commit.
What Does Fee Simple Mean?
What is the difference between leasehold and fee simple when you buy a home in Orange County? Fee simple is full ownership of the land and the home, and it is how most homes are owned. Leasehold means the land is leased to you for a term of years while you own the improvements.
I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. Leasehold is uncommon enough that many buyers have never heard of it, so it helps to know the basics before you fall for a home.
This is general information, not legal advice. A real estate attorney should review any ground lease before you buy.
What Does Leasehold Mean?
HUD's handbook chapter on ground leases describes fee simple as the entire ownership of the property. It describes a leasehold as the tenant's interest under a ground lease for a term of years.
In plain words, someone else, the lessor, owns the land. You buy the right to use it for the remaining years of the lease, along with the home on it. HUD's FHA glossary calls this a divided estate, because the home and the land are held separately.
HUD's chapter also explains the key point: when the lease term ends, the rights to the land go back to the owner of the fee simple and the leasehold ends. That is why the number of years left on the lease matters so much.
How Does Leasehold Change My Costs?
A leasehold home usually comes with ground rent, a payment to the landowner for the use of the land. That is on top of your mortgage, taxes, insurance and any HOA dues.
When you review the ground lease, look for:
- Years remaining. How long until the lease ends?
- Ground rent today. What you pay now, and how often.
- Increases. Whether rent rises on a schedule, is tied to an index, or is reset by appraisal.
- Renewal or purchase rights. Whether you can extend the lease or buy the land.
- Transfer rules. What you need to sell, refinance or rent the home later.
These terms affect your budget now and what the home may be worth to a future buyer.
Can I Get a Mortgage on a Leasehold Home?
Often, yes, yet the lease has to meet the lender's rules. Fannie Mae's Selling Guide says the lease must have an unexpired term that runs at least five years past the maturity date of the loan. On a 30-year loan, that means at least 35 years left on the lease.
Fannie Mae also lists other requirements. The lease must let the borrower transfer, mortgage and sublease the property, and the lender must get notice and a chance to cure if the lessee defaults. HUD's FHA program has its own leasehold rules.
A lease with too few years left can limit your loan choices. Ask your lender to review the ground lease early in escrow, before you remove your loan contingency. For timing, see what happens in escrow for a first-time buyer.
How Are Property Taxes Handled on a Leasehold?
California treats long leases a lot like ownership for property tax purposes. The State Board of Equalization's Rule 462.100 says that transferring a leasehold interest with a remaining term of 35 years or more is a change in ownership. A transfer with less than 35 years left generally is not.
What this means for your tax bill depends on the lease and the sale. Ask the Orange County Assessor or a CPA how your purchase will be assessed. For the basics on reassessment, see how are property taxes set when I buy in Orange County.
What Should I Check Before I Buy a Leasehold Home?
Here is a simple order to follow:
- Confirm the ownership type. Read the listing, the preliminary title report and the deed language.
- Get the full ground lease. Include every amendment and extension.
- Have an attorney review it. Ask about rent changes, renewal and what happens at the end of the term.
- Ask your lender to approve it. Confirm the lease meets the loan program's rules.
- Ask about HOA documents too. In a condo or planned community, the HOA may hold the ground lease.
- Compare apples to apples. Price a leasehold home against other leasehold homes, not fee simple homes.
Let's Start With a Conversation
If you've found a home and aren't sure how it's owned, I'd love to help you sort through the documents and the questions to ask before you commit. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.
Frequently asked questions
Do I own the house in a leasehold?
Usually you own the home and lease the land. HUD describes this as a divided estate, where the improvements and the land are held separately.
What happens when a ground lease ends?
HUD's ground lease chapter says the rights to the land go back to the fee simple owner and the leasehold ends. Check the lease for renewal or purchase options.
Is a leasehold home harder to finance?
It can be. Fannie Mae requires the lease to run at least five years past the loan's maturity date, along with other terms. Ask your lender to review the lease early.
Is leasehold the same as renting?
No. You buy the home and the right to use the land for the lease term, and you pay ground rent to the landowner. Renting a home means you don't own the home itself.