I’m new to the REI Club website. Let me pose a scenario to you:
I do a sub to with seller (numbers aren’t important here)
I turn around and lease/purhcase with buyer, with option fee of $5K.
After one year, buyer qualifies for new loan on the home…
My question is this: The buyer has to come up with a new down payment on their new loan, correct ?? We don’t use the $5K option fee they gave me 12 months ago, do we ??
And obviously, any rent credit would be applied to new loan down payment.
Jeff, It can be used towards the downpayment but it may not be enough. When in doubt check with the Mortgage Lender and possibly your State law as well. Maybe Wendy will reply, she’s the queen of lease purchase.
Herbster
Thanks for the reply. When you say “it” can be applied towards the downpayment,
I assume you are referring to the rent credit ??
My main question concerns the option fee. When the buyer applies for the new loan, is proof of the down payment option fee applied towards the purchae price…?? The buyers don’t actually get the 5K dollars back from me that they gave as the option fee when we first did the lease/purchase…
Nope, I’m not referring to the rent credit and no you don’t ever give it back. It can be applied or deducted from the purchase price or if needed to the closing costs. Personally I don’t use it for closing. I use it as the downpayment(option consideration really) and the t/b will have to save for the closing costs. Just about everything is negotiable, just be creative. Herbster
Jeff, in all likelihood the option consideration and the rent credits will be a credit towards the purchase price. It is very rare that any lender these days will count that as down payment money. Be sure not to make any promises to your t/b that you can’t keep, and be certain that your paperwork reflects this.
The bottom line is that the t/b is responsible for obtaining financing, the specifics or which will be determined by the lender they choose.
To make this a win situation, you should definitely credit that option money towards the purchase price of the home. This is one of the selling benefits for a Tenant Buyer. However, if they decide not to exercise, then you keep this money. This is the benefit for you! Also, a lot of people get the option fee and the option premium confused. Remember, the option fee is what a TB pays you for the right (option) to purchase the property. The option premium is the amount of markup on the home that a TB is paying for the terms.