Is it possible to offer 100% rent credits?

[scntaxpro 0]

I was having a conversation with my father about lease purchasing and he told me that it was illegal to offer 100% rent credits. is that true?

 

He said lenders will not recognize the equity created by 100% rent credits. have you ever heard of this before?

[Jonathan RexfordFL 8]

Way back when I was brokering mortgages it was a common in underwriting guidelines to offer anything that was above market rent as rent credit. Now that was 15 years ago. We could use it as a form of a downpayment. There is nothing wrong between buyer and seller agreeing that 100% of it goes towards purchase price which is safer for everyone.

 

Illegal.....I always ask show me the Code. Against Underwriting guildelines of specific lender....then yes. That is company policy.

 

Don't let offering huge rent credits scare you off. It is not your responsibility to get them financed. There is a guy on here name Pilot something and he had a good thread awhile back about financing. If I can find it I will throw it up here.

 

Interview some lenders in your area. But remember that RENT CREDIT IS TOWARDS PURCHASE PRICE...NOT DOWNPAYMENT

[scntaxpro 0]

Interview some lenders in your area. But remember that RENT CREDIT IS TOWARDS PURCHASE PRICE...NOT DOWNPAYMENT

 

ok. that makes a lot of sense. I was thinking that the purchase price doesn't go down but the rent credit applies to the down payment. if it applies 100% to the purchase price then i can see how it would be feasible to do. thanks for your reply.

[MichaelC 160]

Stephen, Jonathan's reply was textbook perfect. Rent credits in any amount are not illegal. But they are to be applied as a credit towards the purchase price, not as part of the downpayment. . .unless the lender is cool with that. But that's not the norm these days.

[pilot76180 51]

Way back when I was brokering mortgages it was a common in underwriting guidelines to offer anything that was above market rent as rent credit. Now that was 15 years ago. We could use it as a form of a downpayment. There is nothing wrong between buyer and seller agreeing that 100% of it goes towards purchase price which is safer for everyone.

 

Illegal.....I always ask show me the Code. Against Underwriting guildelines of specific lender....then yes. That is company policy.

 

Don't let offering huge rent credits scare you off. It is not your responsibility to get them financed. There is a guy on here name Pilot something and he had a good thread awhile back about financing. If I can find it I will throw it up here.

 

Interview some lenders in your area. But remember that RENT CREDIT IS TOWARDS PURCHASE PRICE...NOT DOWNPAYMENT

 

Hey my peeps!

Here is a copy of that post regarding rent credits etc.

Hope it helps.

 

 

If I may add MY 2 cents here, or maybe it's 3 cents for those that care, here is how the loans work.

When you buy a house, there are two things to consider. Down payment, and closing costs.

With current lending guidelines, FHA now requires 3.5% down. So the Option Fee, or Assigment FEE is going to reflect as down payment.

So on a CA, if you set the Ass. Fee at 3%, the tenant will need approx .5% additional for down payment.

 

On the closing side, the buyer will need about 3% give or take for closing, which includes orig. fee, pro-rated ins. tax etc. (obviously there is some variance here)

So, the lender will take the rent credits as a seller concession for closing costs to the borrower.

So on the HUD, it will show:

Sales Price

Earnest Money (which is the assignment fee)

Seller concession (which is the rent credit)

 

With the demise of most DPA programs, the lenders won't allow the seller to contribute the rent credits to down payment, and will only use them as a concession, as they have to see the down payment exchange hands. Now, if one wanted to, the tenant could write a seperate check each month for the amount fo RC, and write "earnest money" on the bottom of the checks, and use that for down payment. But the DP MUST trade hands. It can still be gifted to the borrower by family etc, but it has to trade hands.

One thing to make note of, is that the lenders will only allow 6% seller concession, so if you are offering 100% rent credits, but that exceeds 6% of the cost, then you can't do that. Unless you just lower the option price instead.

If the lender requires a sales contract, then you can use the info above to have the owner complete the contract.

The contract will have a line that states something like: "Seller agrees to contribute up to ______ to be used for buyers closing costs, blah blah blah."