I have been following this forum for a long time and it is great.
I am a newbie and have two questions in reference to Lease Options. I purchased a house on 03/25/04 and put a tenant buyer into the property in April. The tenant buyer is exercising his option to buy the houe and close by 03/18/05. What is the difference in taxes (%) if I were to have him wait another week and close after 03/26/05. BTW, I am in TX.
Second, I might not have a choice in trying to wait until after 03/26/05. My tenant buyer’s Mortgage Broker called me a couple of hours ago and stated that the Lender will not accept the option money, security deposit and rent credit ($11,300) as down payment because I did not record the Lease Purchase with the County Courthouse. I do not have the money to take to closing, because I invested the money into other houses. What is the solution to this problem? Does the Mortgage Broker need to find a lender that is more flexible?
First off, when u put the tenant into the house on 3/25/04 what was the option price? What was the price of the house u gave them?
Second off, your lease option money does not go to the lender, it goes to you… what the lease option does on MY contracts is lower the contract price of the house… so if i had a $100,000 dollar house and i sold it to them at that, and they gave me 5% option money at $5000 that would be $95,000 towards the house right?? well if you were giving them rent credit and that was at $100 a month, that would be $1200. and security deposit IF they chose to put that into their option, that would be whatever the depsoit was… $1000??? ok thats $7200 towards the purchase of the house… thats making the house $92800. Their price on the house is $92800, nothing more nothing less. So what THEY got to do is get a lender to get them the money OF $92800… They have to come up with the down payment on the $92800, not you… The option money that you received is for them to move in and have that option. You were there to ALLOW them to take control of the house w/o having the credit to actually BUY the house!!! In other words, their option money, security deposit etc was towards lowering the price of the house so they can get a lender there after!!!
Thank you for your reply. I understood everything you wrote. I guess my other mistake in this was not reiterating to my tenant buyer that when they are ready to purchase I will put them in contact with a broker that is familiar with lease options.
You don’t control the terms of the tenant/buyers loan, and a properly structured L/O contract will state that the tenant/buyer getting a loan is not a condition of contract performance.
What you do control is the final price of the home. Rather than tell my tenant/buyers that their option consideration and rent credits apply to the down payment on the home, I specifically state that it will apply to the purchase price when they get their loan. This can be credited in escrow without cash, and the lender has no control on the amount you choose to credit.
Remember, a contract is only as good as its structure. I never make promises that are beyond my authority to make good on.
Most lenders will not accept Lease Options unless they are recorded and have at least one year of seasoning. However, there is one lender I know of who does not require the Lease Option to be recorded – New Century. I have used them before (This is not an advertisement - not directly affiliated with this lender). Direct the mortgage broker to contact them – this should solve the issue on a non-recorded option. You may have to “back-date” your lease option, however, for one year. Either way, the buyer’s mortgage broker is going to have to go with a non-conforming ( “out of the box” ) lender to get this done. If he’s trying to get this deal done through a conforming lender, it will never happen! New Century also allows up to 6% seller contributions – very flexible as to seller contributions! Experience really does matter in the area of mortgage lending! 8)
I may be wrong on this, but who cares if its a lease option or not. If your tenant/buyer paid you by check for 12 months on time and can prove it, a mortgage broker should be able to get them a loan under equity financing.
So what I’m saying is that if you just had a tenant for 12 months who paid by check on time and can prove it, and you offer the place to sale to them, a mortgage broker should be able to get them financed as long as all else is ok under an equity loan providing the l-v ratio is ok.
This is according to a mortgage broker i work with in NY.
Present it this way see what happens or tell them to find a new lender or get another mortgage broker who understands what we do.
