FSBO - L/O - Downpayment ?
I am looking at a deal that is under $50K. My local bank want a 20% downpayment and others would do a 10% downpayment but the area has no comps hence a steady decline with financing. So I am going to propose a FSBO for at least 18 months which should create a comp and a little equity. My question is if I give the seller 5% down should that stay in escrow until I refi? I am sure the bank will want to see a downpayment and may want it transferred to them. How can I make this deal duable for both parties for I am very new to L/O deals?
Set up an escrow with an attorney. If the event you suffer foreclosure and the tenant buyer is prevented from exercising his option to purchase, then the attorney can return the option consideration.
At the end of the option period, the option consideration is forfeited if the option has not been exercised.
I never miss. But,my option contracts state that if I miss a payment then the tenant can make the payment and subtract double the payment amount from his purchase price.
It has more to do with the lender and thier guidelines. And while the Option Fee can usually be credited toward the down payment, some lenders will only apply rent credit to a price reduction. And whether it can be treated as a REFI, rather than a purchase, is an entirely different issue. Not to mention, there are different state laws regarding Lease Options, equitable interest, etc. Sometimes it may be better to do it as a CFD or Land Contract, rather than an LO.
My 2¢
One thing to keep in mind is that in Canada it is often easier to get a new mortgage than a refi, and the buyer can get in with a smaller down payment (100% or 95% instead of 90% with a refi).