Lease Option Down Payment and Rent Credits

Could someone please in detail as best to their ability explain to me how a TBs option payment and rent credits work in the deal.

If I market a house for 200,000 and a TB puts 10,000 down and gets credited 300 per month and after 12 months chooses to exercise his/her option, how does the 13,600 play into this?

Simply the new sale price is 186,400 in which the TB has to finanance? :help

I have other questions in regards of but will best be asked after someone could fill me in some blanks, thanks. :banghead

The option fee is just the option fee. It’s not a downpayment. That’s very key in avoiding equitable interest.

Also, I’d avoid offering rent credits. I’d solely negotiate on price. If you want to give rent credits of $3,600 then lower the price in the contract by $3,600. It’s the same deal with avoiding equitable interest.

You want to maintain your power to evict vs. having to foreclose. Eviction is inexpensive and easy relative to foreclosure.

I honestly think very, very few people ever buy a house they lease option. It’s really just a way for landlords to make more money by renting. They get the option fee and a higher rent.

I see your point and is well taken. But as an investor, What if I am wanting equitable interest in the property, not neccessarily for the TB.

On another note, the guru’s course I bought was all about deposits and rent credits as part of the marketing strategy. So that is where my original question derives from.

Also, I wanted to finance and buy this house I got on option right now… but every bank or mortgage kept saying that I didn’t have any equity even thought the market value is 240k and I am buying for 198K this is why I am a bit confused… how would the deal be structured where 10-20% equity is built into the loan so that I could easily qualify. Because I cannot even qualify right now :deal because I don’t have 10% to put down… even though the price is 40K under MV.

If I market a house for 200,000 and a TB puts 10,000 down and gets credited 300 per month and after 12 months chooses to exercise his/her option, how does the 13,600 play into this?

Simply the new sale price is 186,400 in which the TB has to finanance?

Correct. Option money and rent credits are normally credited towards the agreed to purchase price. They are not a part of the down payment. Be careful about making promises you can’t keep. What happens between a t/b and their lender is between them.

Also, I wanted to finance and buy this house I got on option right now... but every bank or mortgage kept saying that I didn't have any equity even thought the market value is 240k and I am buying for 198K
Seems the discrepancy is over the fair market value of the house. Where are your figures coming from, and where are the bank's coming from?

The figures I have are of 3 places. Tax Assesmet (which I know is not “law”), comps, comps and I went to the house down the street and asked how much they sold their house for (they had a realtor sign w/ SOLD on it) and they said 225k but it was smaller house and the land lot was smaller. one of the Comps in the same area but different road was 288k but was a bit bigger house and newer. I am easy at saying 240K.

But what I was getting at, the bank says it didn’t matter what Its worth, the sale price is was the “value” and I needed 10% of the 198K.

This is why I am trying to hammer this out… I am unsure of this process.

Sales price is sales price. If you want money out after that because you have equity, then you have to refi or get a HELOC.

What you can do is buy for $198k and get the owner to carry a 2nd for the 10%. That should work if your mortgage broker is good and the seller is willing. You’ll probably pay a higher rate on that 10% and the seller may want a balloon on it. That’s ok if you want to refi anyway to get the rest of your equity out.

Afternoon William,
The bank does not look at the fact that you are buying back of market. If you buy at 198k…to them that IS market. They are matching that to your purchasing ability and designing your loan to match.
You still need some down payment to get in the door. When the appraiser comes out he is trying to justify the 198k price. He may have an easy time doing it which in turn will help some with your financing, but you still get no credit for buying back of market. Please delete zillow from your tool box it is going to hurt you sooner than later. It has about the same value as “taxed assesed” . Interesting info but do not count on it for decisions that involve supporting your family.
Nozillow, Darin

well, I was so excited to score the deal at “loan balance” I told the seller that I would pay all selling costs. Well I trotted down to the bank and was like “I want to roll everything up into the loan.” Well I was having a difficult time at how to structure the option agreement so that I could wrap it all into the deal. 3% seller concession/contribution was not going to do the complete trick. Then the lender’s say they don’t want to see seller’s closing as part of the loan.

I ended up finalizing the option last night with the cost of one dollar plus the remaining principle balance.

And here I am, figuring out the ins-outs.

Thanks for your inputs, I will surely make this a learning experience.

So another door opens: What is meant by owner carrying back a 2nd? Would that mean they are on my loan for 10% of the loan itself? and is that like a co-sign? or more like there are 2 notes to the loan, 1st being 90%(me) and 2nd being 10%(seller) which is actually all considered a 1st Mortgage?

Thanks again :banana

Seller would be loaning you 10% as if it was a 2nd mortgage. It may not work if they owe $198k though. They need some equity for it to work.

This is where I am missing something. What equity, where is it? Where would they get it, would it be the difference of their refi and what they owe. ie, the refi in 2004 for 208 000, they now owe
198 000, does this mean they have 11 000 in equity? where does an appraisal come into play? this is where I was getting at in Deposits and Rent Credits… how that would work…

So if I go to the bank and I have a purchase and sales agreement for 198 000. The bank says I need 10% to put down. I pull out my wallet and count out 990 $20 dollar bills :bobble… Who gets that money… is the loan for 198 000 still, or is the loan now for 178 200

please enlighten me :help

William !
You are drivin’ around in car that is out of control with no seat belts. There is a wreck about to happen.
Is this property worth more than 250k or not?
Is the seller motivated, really motivated yes, no ?
Are you buying to live in or resell?
There is an answer here, but lets not go there yet…it may be easier to tie this up with out getting traditional financing but I need more info from you.

I already have the house under contract, lease option for 1 year at the price of the principal loan balance.

I just got the title search done today. and it checked out. All I have to do is record the affidavit.

as of now the pay-off is about 198 000

I am moving into the house June 1st

The seller got conned by a Primerica agent to sign up for their awesome mortgage program at for 8%

The PI alone is 1600 per month and TI is 250. This is way out of control, I cannot afford more than 2-3 months of this as it is literally half my pay…unless I get more cash

Yes the house is 240 000 ish

This is my situation.

Good evening William,
Sounds like a good product to sell asap! You know how long you can afford it so there is your exit strategy. Get to advertising yesterday, call every Realtor, email everyone, run adds in every paper. Let everybody know you have a property for sale and sell it. Make some money and repeat. I know this is the one you want to use for your family…but if you can’t afford it whats the point? Sell!!! make some money and repeat till you can afford to keep one.
In the early years , when I bought a fixer and moved in, fixed it, my wife was upset to sell because it was so nice. To solve the problem I would show her a nicer home to buy and live in, problem solved. Even if you refi and get more cash…the road ends soon if your income won’t support the payments. You have half the answer already, need more cash, have property that you are controlling that is back of market value…you have what we are all looking for. Now the easy part. SELLLL collect profit and repeat. :dance

Might not be what you were looking for but you are an investor and I guess you will have to suffer through the higher level of income now. Darin


It does sound like the logical move, however… with my own financing… I would be able to afford the house, 550 dollar difference is a dealmaker/breaker at this point.

Just to be clear, when you say “refi” you are talking about a strait out purchase loan…correct?

I can not refinance on an option is what I understood from the banks. right? though the course I bought the guys preaching that banks are “refi’ing” Lease Option Tenate Buyers these days, I ask every time and they barely know what a LO is… oh well.

Hi William,
What I meant on refi was if you were to get a new purchase loan to buy the property… then refi or get HELOC just to afford the payments.
But now I understand the fact that it is a bad loan from the seller and you don’t want to keep it in place for long. Brings us back to whether you are able to get “new” financing today or before 2-3 months. If not I would sell ASAP. If you can get new funding with in 2 months…Then welcome to the American dream ! Go to the guru who sold the product and see who They use to refi a lease op. then tell us. We will all call you King William from then on !
It all sounds “to close” for comfort though…might think about the potential profit over night along with what property you would purchase with the potential profits. Then think about how many times you could do this before the end of the year…or just stay where you are and try to afford it, maybe.
Tough decision, I know, Good luck, Darin

The course was from Jason Loucks HomeFinancingOptionsdotcom, I was not truly satisfied with the course so I opted to return it for a refund… by yea, he is saying banks are refinancing tenate/buyers on lease options within like 7 months… anyhow, thats where I got all this Deposit and Rent Credits from…

So, I guess who would be the best “guru” now to learn from?

It seems Wendy Patton is promoted on this site, would she be the best “teacher” to learn from at home for this business…?

I like the Wendy Patton info, works for me !
Still would like to know if you ever get the refi info onlease/op’s
Thanks, Darin