Rent Credits Rejected By Lenders?

[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.

 

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

 

Sorry for the delay Dan, I've been so busy on "other"sites, that I forgot about good old MC's site

Let's say that the sales price is $150,000. With an assignment fee of $3,500 and rent credits totalling $3000. Some lenders prefer to have a sales contract, and that's fine, you just draft a sales contract for $150,000 with the seller agreeing to give the buyer $6,500 back. The buyer can use that for his closing costs and principle reduction. The numbers are the same. Our experience with FHA loans, is they of course require 3% down, which would come from the assignemnt fee, not the rent credits.

In other words, sometimes the LO (loan officer) will trash our docs and we just draft a sales contradct to reflect the same numbers.

[Dan (SoCAl) 0]

Thanks Pilot, that's how I'm understanding this now. It was total confusion there for awhile, but it has helped me immensely to go through the closing process as a tenant/buyer. Now, rather than waiting for the lender to reject or rewrite my contracts, I am pulling all references to "rent credits" out of my Lease Purchase agreements. The language is now "price reduction," which lenders in these parts understand.

 

I'm also pulling out the parts about the purchaser paying all allowable closing costs. The seller's deal is already magnificent, there's no need to nail the purchaser to the wall. Thanks for your help!

 

Dan

[pilot76180 51]

Thanks Pilot, that's how I'm understanding this now. It was total confusion there for awhile, but it has helped me immensely to go through the closing process as a tenant/buyer. Now, rather than waiting for the lender to reject or rewrite my contracts, I am pulling all references to "rent credits" out of my Lease Purchase agreements. The language is now "price reduction," which lenders in these parts understand.

 

I'm also pulling out the parts about the purchaser paying all allowable closing costs. The seller's deal is already magnificent, there's no need to nail the purchaser to the wall. Thanks for your help!

 

Dan

 

I forgot that in MC's contracts he has the buyer paying all allowable's. We have the seller pay their costs, and the buyer pay theirs. The seller here in TX will pay approx. 1.5% or slightly less, not inlcuding escrow fees, for the title and survey. We have found that if the buyer paid all costs, they would normally have to come up with more money to close. Otherwise you would have to give more rent credits, which means, hey, the seller is paying the costs anyway.

[MichaelC 160]

I'm also pulling out the parts about the purchaser paying all allowable closing costs.

 

I forgot that in MC's contracts he has the buyer paying all allowable's.

A little clarification, gents. First, as you both know, each and every deal is different, and so what ever is negotiated and agreed to between parties is fine.

As for the purchaser paying "all allowable closing costs", generally speaking this is when I am in the midst of a sandwich lease. The Agreement between myself and the homeowner states that I will pay all allowables. But then the Agreement between myself and my t/b states that they will pay all allowables, passing the bulk of closing costs to the end buyer.

Same with a CA. As an enticement to get the homeowner to do the deal, my Agreement again makes the the t/b responsible for all closing costs.

If I were to find myself in a position where I was lease purchasing a property for my own use and intent, I would not agree to pay all allowable closing costs unless there was a specific reason for doing so.

[pilot76180 51]

One last comment on this subject then it's back to the Turkey 101. Almost EVERYBODY that goes through a lease purchase will get subprime financing. Subprime is much more relaxing and forgiving on rent credits than A paper. We have NEVER had an issue with a subprime on rent credits. NEVER.

[mpine 0]

You can really only go Subprime on lease options. If these people were to get a loan on a normal sale they would be getting the same type of loan.

 

Mike