Rent Credits Rejected By Lenders?

[Dan (SoCAl) 0]

Hey all...I did my first lease purchase nearly 12 months ago and moved into the house myself. All was well until I went to obtain financing. No broker that I talked to could credit me with 50% rent credit (as written), but only with a much smaller portion that they considered an amount "above market rent."

 

I finally found a broker who put the deal together by making up the difference as a price reduction from the seller. This keeps the same bottom line for everyone and we're ready to close (like, right now -- all papers are ready for signatures and checks are ready to drop).

 

Perfect, except the homeowner has rejected the deal! He claims it is not what we agreed on, it's shady and he will pay more taxes as a result. I have no idea if all that is true but it seems I am about to lose the house if I can't find a lender who will accept the contract as written (Michael's CA contract, unaltered).

 

I am in California. I have a perfectly good broker who has really gone to the mat to put this together for me. All we need is a lender who will honor the 50% rent credit CA contract. Can anyone recommend such an animal?

 

Dan

[MichaelC 160]

Hello, Dan! It's been a long time since we've talked. Good to hear from you again.

What you are describing with your lender(s) is not so unusual. The more conservative among them will say just that: only rent credits above and beyond the market rent can be applied toward the purchase price. But I can tell you from first hand experience that not all lenders are like this. You need to work with those who aren't limited in their thinking. Lenders who work with investors. I suggest you contact fellow member Mike Pine. He's a NY based mortgage broker, but if he can work deals in CA he might be able to save the deal.

In addition, there are a number of other folks who advertise their services in our Funding Forum. Take advantage of that and contact a few to see what they might be able to do.

Dan, you might also contact your local REIC's. They are usually full of lenders who specialize in investor loans. Between the above you should be able to find some help.

Finally, with the deal so close to finalizing, I have to think that if all parties involved want it to happen, it will. Sounds to me like the homeowner needs to loosen his heels from the sand and be a bit more flexible. "Shady"? Where? How??

[Dan (SoCAl) 0]

Thanks Michael; I have a call into Mike as I write this and I'm sifting through the Funding Forum.

 

Dan

[MichaelC 160]

Thanks Michael; I have a call into Mike as I write this and I'm sifting through the Funding Forum.

 

Dan

Best wishes on this, Dan. Keep us posted.

[happyardy 0]

Thanks Michael; I have a call into Mike as I write this and I'm sifting through the Funding Forum.

 

Dan

 

 

Hello,

Can someone explain the rationale behind some lenders not wanting to apply rent credits(or a part of it) towards the purchase price ? Is it only because they want to make bigger loans and hence more money for them ? Or is there is something else too ?

thanks

-Ardy

[MichaelC 160]

Thanks Michael; I have a call into Mike as I write this and I'm sifting through the Funding Forum.

 

Dan

 

 

Hello,

Can someone explain the rationale behind some lenders not wanting to apply rent credits(or a part of it) towards the purchase price ? Is it only because they want to make bigger loans and hence more money for them ? Or is there is something else too ?

thanks

-Ardy

Good question, Ardy. I had one try and justify this way of thinking by telling me that since rent credits are not "hard cash", unlike a cash down payment for example, that they viewed this as flirting with loan fraud. I don't agree, of course, but that was his explanation.

[Dan (SoCAl) 0]

Best wishes on this, Dan. Keep us posted.

 

Okay, first immediate problem from making calls: I'm only reaching brokers, not lenders. They want me to toss my broker aside like he was yesterday's news. My guy has earned his fee 10 times over and I'm not dropping him. I need to find a LENDER who can work a Lease Purchase deal. I've already been probed and approved nine ways to Sunday and I'm in no mood (and have no time) to start back at square one.

 

Does anyone know of a LENDER who can fund a Lease Purchase? PLEEEEASE!

 

Dan

[happyardy 0]

Thanks Michael; I have a call into Mike as I write this and I'm sifting through the Funding Forum.

 

Dan

 

 

Hello,

Can someone explain the rationale behind some lenders not wanting to apply rent credits(or a part of it) towards the purchase price ? Is it only because they want to make bigger loans and hence more money for them ? Or is there is something else too ?

thanks

-Ardy

Good question, Ardy. I had one try and justify this way of thinking by telling me that since rent credits are not "hard cash", unlike a cash down payment for example, that they viewed this as flirting with loan fraud. I don't agree, of course, but that was his explanation.

 

 

MC,

Loan fraud would be if a person is asking the lender for more money by inflating the home's price etc., right ? But if a person is actually letting the lenders know that he has rent credits from the seller and hence would require a loan for a lesser amount (actual home price - rent credits), how would that be flirting with loan fraud ?

I may be missing something here.

Also, it is not like we are asking for rent credits to go towards the down payment; the lender is going to get his downpayment.

In my opinion, the only things that would change for the lender who is willing to lend to a Lease-Purchase transaction are

1) Slightly smaller downpayment. 2) Slightly smaller loan

E.g.

Conventional deal

E.g $200K appraised price, 10% downpayment = $20K ; loan amount = $180K

 

Lease purchase with $500/month rent credits

Final price ($200k - $6K = $194K), so 10% downpayment = $19.4K; loan amount = $174.6K

 

What I am failing to understand is that if we declare to the lender that we have rent credits and ask for the loan on the actual remaining amount(which is less), how would we be flirting with loan fraud ?

I may be totally missing out on something so please feel free to correct my explanation.

thanks

- Ardy

[Dan (SoCAl) 0]

Mid-day update: Positions are softening a bit. I was finally able to speak at length with the homeowner and find out his main objection, which was that he would have a different tax outcome with the current hybrid transaction than with a 100% as-written LP. My broker assured us that his situation will be identical with either transaction.

 

At the moment, we are moving forward.

 

Dan

[MichaelC 160]

Mid-day update: Positions are softening a bit. I was finally able to speak at length with the homeowner and find out his main objection, which was that he would have a different tax outcome with the current hybrid transaction than with a 100% as-written LP. My broker assured us that his situation will be identical with either transaction.

 

At the moment, we are moving forward.

 

Dan

Cooler heads are prevailing. And why not? Everyone is aiming for the same goal: the sale of the property from the present homeowner to you.

One more thing, Dan. Regarding the tax issue that is of such concern for the homeowner, you might want to run this scenario by DaveT over in the Tax forum. He knows more about this stuff than anyone I know.

[pilot76180 51]

Our experience is that when you get into A paper loans, the lender will look at the market rent. So no biggie, you just draft a sales contract showing DPA for that same amount.

[happyardy 0]

Our experience is that when you get into A paper loans, the lender will look at the market rent. So no biggie, you just draft a sales contract showing DPA for that same amount.

 

 

Pilot,

What is a DPA ?

thanks

- Ardy

[Dan (SoCAl) 0]

Our experience is that when you get into A paper loans, the lender will look at the market rent. So no biggie, you just draft a sales contract showing DPA for that same amount.

 

This is too important for obscure abbreviations. What is DPA??

 

Dan

[lacashman 0]

What is a DPA ?

thanks

- Ardy

 

Down Payment Assistance

[Dan (SoCAl) 0]

Our experience is that when you get into A paper loans, the lender will look at the market rent. So no biggie, you just draft a sales contract showing DPA for that same amount.

 

It looks like my deal is going to go through. BUT, I came very close to losing a house I have lived in for the past year because I couldn't find a lender who could apply the rent credits as written in the lease purchase contract. 100% of the brokers and lenders I contacted said "Nobody will do that." One guy even emailed me several pages of guidelines from different lenders to back up his statement.

 

One broker I contacted from this board said he DID in fact have lenders who would do it, but they were a "secret" and neither I nor my broker could contact them...unless I found them on my own. Beautiful.

 

My deal is getting done because the homeowner and I are being forced to accept a re-structured deal. I need to get this worked out because I have potential landmines out there with two completed CA's which will blow up when it's time to close. I can't keep sticking people in deals which have zero chance to close as written.

 

So, Pilot, if you please, when you say "So no biggie, you just draft a sales contract showing DPA for that same amount" how does that work? What does that mean, and is it essentially a restructuring of the LP contract? If it is a restructuring, wouldn't it be better to just write the original agreement that way (whatever way that is)?

 

Dan