Another Question
If the person you put into a home via the lease/option decides to buy the home don't they also have to put so much down with the bank in order to get a loan? How does that work out since they just gave you say 3K to move in (option money)? Is that really fair to make them come up with two different downs in order to buy them home or am I just missing something?
Thanks,
Mitchell
You also have to remember that you will usually sell it to them a litle below market value, and they should have cleaned up their credit in the 1-3 years the optioned the home for.
Hi kingmonkey,
During the initial negotiations with your buyer/tenant, offer them rent credits.
Lets say you intend to get $800/mo on the lease option. Offer a credit of $200 off of the purchase price for every additional $100 they pay in rent. Now, lets say that they agreed to pay $1000/mo to get a total of $400/mo credit toward the purchase. The way that you prove this to the lender is that you have your tenant write 2 checks to you each month. One for $400 and one for $600. Make sure that they write "down payment" on the $400 checks. Now that means that you are getting $200/mo added to your cash flow and after 2 years of paying you, they have $9,600 of their down payment saved.
This is a fantastic way to accomplish 2 goals; they have a provable down payment and you have 2 years of extra cashflow. This strategy depends upon your purchase price being retail or higher. I couldn't imagine letting someone qualify with no credit AND a get a low purchase price. The purchase price is important to them, just not near as important as being approved!
hope this helps,
clear2close
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C2C:
Sounds like a good idea, but i would think a competent attorney could get a judge to make you give them THEIR down payment money back since they never bought anything.
or is there a way around that?
I think the down payment is a good idea, but two checks sounds dangerous
It's all in the agreement. "Non refundable" downpayments. I've been a mortgage borker for more than 10 years. The only time that this doesn't go as planned is when the buyer changes his mind, moves out, and you collect another L/O deposit from the next buyer.
hope this helps,
clear2close
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clear2close
Because this would be considered profit income, wouldn't you have to pay taxes on that 9,600? Also, if the t/b does exercise their option, you have to have that money available so it really can't considered positive cash flow because it really isn't yours unless they don't use their option. Am I anywhere in the correct ballpark?
Quinn
C2C, instead of them writing two checks per month couldn't they just note it on their check on the note line? They could put something like "$400.00 down payment/ $600.00 rent."
Mitchell
Am I on candid camera...?
I don't know of one lender that would accept less proof of the down payment. Remember, they expect you to say whatever you have to to get the sale done, you're the seller.
The proof of the funds at closing is the cancelled checks, not cash. you produce the checks for underwritting and for the closing agent and get $9800 less at closing. Since you're selling it at retail price or higher, you should have room for this. $9800 now as opposed to later is worth much more....time value of money.
hope this helps,
clear2close
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we put their option consideration in escrow with our loan servicing company (LSC)..100% of this consideration is used towards the purchase price or closing along with any credits acquired through-out the lease period..if your tenant is really on the border both credit and down payment to the bank, we keep the cash liquid in escrow..either way you look at it whether cashing out their option consideration or not, directly effects the cash back at closing.. but the bottom or gross equity YOU built into the deal is the same, its just when you take a portion of it or not..so i guess to help you on you original question is no they do not have to come up with another down payment when it comes to a refi if it was built into the deal...hope this helps a little..you can pm me and i can show you the numbers we are working on now to avoid this burden with our tb's..
Regards-pat
I'd rather spend it this year, but just an opinion...
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Watch out when referring to consideration and rent credits as 'down payment'. That implies an equitable position and could have you on the wrong end of a judges decision if they T/B can't afford to buy and wants some money back.
that is absolutely true from thomasgsweat--i have never had a problem with this in or out of court, but cya in any dealings in real estate..the pro's and gurus are what they are, i beleive, because of knowing the potential pitfalls and always preparing..AKA-a chess game..i suck at chess but im willing to learn..hahha
good luck
Regards-pat
Excellent point. Thank you.
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