option money as down payment for t/b???

[bpmiller2 0]

Ok, after years of alcohol consumption, I only got two brain cells left in my head and they are at war with each other of this using the option fee as downpayment. Now for a CA deal, I understand the whole net price and then marketing it to my t/b at price with rent credit and option fee. But if we are saying to t/b that the assignment fee can be used as down payment and pocket that money, when the t/b goes to lender for financing the lender is going to say "ok where is that money at now....we need it as part of the down payment for the loan? Does that make sense????

 

Now I would think that the only way you can say that the option fee is going to be used as down payment is if you list this money as earnest money in the purchase contract. You see, when a t/b tries to purchase the property and goes to a lender to get their FHA loan they will need 3.5% down and that lender is not going to just say "sure we wil credit you the money you gave as an assisnment fee to the investor as part of the downpayment". So in my mind the option fee, just like the rent credit, will only be able to be used to lower the actual purchase price, not used as part of the t/b downpayment.

 

Please weigh in on this as I would like to hear how others are handling this. Thanks.

[MichaelC 160]

Miller, I gather you were named after the brewing company? Why not Sam? After all, Sam Adams is a much better beer than MGD. But I digress. . .

Your confusion lies with your thinking that the assignment fee/option consideration applies towards the down payment. It doesn't, at least not usually. The option consideration, as well as any rent credits, are a credit towards the purchase price. Review the Option to Purchase Agreement and you will see this is what it specifies.

As an example, if the t/b pays $3K option consideration and then earns $7K in rent credits during the lease, that $10K would come off the agreed to purchase price. Meaning, if the price of the house was $200K, when they go to buy it the price would then be $190K.

Hope this helps. In the meantime, it's Friday. It's hot. It's Miller Time. . .uh, make that Sam Adams time.