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GetErDun

T/B Financing

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Hi All,

 

I'm still lurking around if anybody remembers me :) I feel really weak on the financing side and want to be able to explain (to the HO and the TB) how LO is beneficial to a TB when it comes to financing.

 

The way I am seeing it, the TB can NOT refinance the house unless they are added to the title and on it for a year. I would think they would only be (possibly) added to the title in a CA situation... NOT a SLO (with stipulations that they are to be removed if option not exercised by X date) If they were on the title, a refinance would be an option? That would be very attractive to the tb. The seller could also see it as being easier for the t/b to get a loan.... and buy their house. Yeah?

 

That said, with CAs that are treated as regular loans, not refi's, does the lender

1. deduct the option money/rent credits off the price of the house? or

2. deduct the option money/rent credits as a down payment? or

3. could be done either way, depends on the lender.

 

Used as a down payment (rather than off the top of the purchase price) would be much more attractive to a TB I would think, because of less out of pocket.

 

What experiences do you have with this?

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The way I am seeing it, the TB can NOT refinance the house unless they are added to the title and on it for a year. I would think they would only be (possibly) added to the title in a CA situation... NOT a SLO (with stipulations that they are to be removed if option not exercised by X date) If they were on the title, a refinance would be an option? That would be very attractive to the tb. The seller could also see it as being easier for the t/b to get a loan.... and buy their house. Yeah?
GetErDun, I can't imagine too many homeowners willing to add a t/b to the title. Can you? Yes, it's a great advantage for the t/b, but not so for the homeowner. No, if the t/b wants to buy the house they are going to need to get their financing in place and do so that way. A big help in the process is for the t/b to begin their search for financing early. I have seen too many wait until the 50th week of a one year lease to begin their search for a mortgage. Despite my advising them to start in month two or three.

 

That said, with CAs that are treated as regular loans, not refi's, does the lender

1. deduct the option money/rent credits off the price of the house? or

2. deduct the option money/rent credits as a down payment? or

3. could be done either way, depends on the lender.

It does depend on the lender. But my experience has been that option consideration can often be used as part of the down payment, since there is a paper trail showing the hard money payment. But rent credits are rarely available as down payment money. Instead, they are a credit towards the purchase price. So if the agreed to option price is $300K, and the rent credits total $15K, then the amount of purchase now becomes $285K. Make sense?

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When "refi'ing" a a l/o you are actually getting your own loan it is just what they call it because you have been living there.

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Keep in mind that because of the option payment and the rental credits applied to the purchase price... the bank will then be financing a home with a bit of equity on the table... unless the T/B actually gets the loan for the appraised and appreciated value where he can actually end up with cash in his pocket at closing. Everyone wins.

 

Examine MCs 300K home example that applies 15K in rental credit dropping the number to 285K. The option payment, somewhere along the line, would have been added as well to be deducted from the purchase price too to some degree which would drop the number a bit lower. Using this example can assist the potential T/B in making his decision to pay a good option price as well as move forward in the process. T/Bs usually shy away from the deal based on a few things they are uncomfortable with and wont always make it obvious and tell you:

 

Price

Term

Payment (including the option payment perhaps)

 

You need at least 2 out of 3 to be in your favor if not all of them. When I sold cars... I would label this "holding gross" =)

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I just sold a SLO a couple of months ago only after 4 months into the lease term. The t/b did not have perfect credit as he had just been through a divorce. With his option consideration and 4 months of rent credits and also getting first time home buyer assistance he was able to "refi" the lease purchase and only come out of pocket $47 at close. And that is in the current mortgage squeeze. He had a damn good mortgage broker who is now my resource! I think the broker was Italian. :)

 

Too bad it sold, though. Nice little house and I had a 3 year term with a good monthly.

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. . .He had a damn good mortgage broker who is now my resource! I think the broker was Italian. ^_^
He'd better not miss a payment then! :glare:

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Thanks everybody for replying! In answer to everyones posts...

 

MC -

No, I really can't imagine a HO putting a TB on title. I'd never do it. Even with stipulations, its just too risky. Ok, but in THEORY that would work and it would actually be a refi. :glare:

 

Ok, good, option money as part of the down. Bummer but understandable that rent credits are only off the top. Good to know how it's usually done. I will be contacting some brokers through our local REIA so I can have a few to refer TB too. I think it would also look better to a HO if they ask me about TB financing and I have some names for referrals. Thanks mc!

 

Tony -

What a great, easy way to remember that. Thanks!

 

Dustin -

Yeah, I hadn't thought of explaining it to the TB that with their option money and rent credit that they will actaully have some equity in the prop. Sure wouldn't say that to the Seller though or they will want "their" money. I get the feeling that sellers think realtors earn their fees and we steal it LOL, but not really funny. I just don't understand why people freely pay 5-6% to realtors yet wont let the BUYER pay us our fees, with nothing actually out of the sellers pocket, in fact the seller gets more. Ok, rant done. Back to your post Dustin. Great point in that not all TB will tell you about their fears, and that some will just assume there is nothing that can be done and just drop the whole thing. Good to remember when you are about to loose a TB that you thought was for sure going to buy.

 

Steve -

Holy cow batman! Does your guy write mortgages in AZ?

 

 

Some more questions for everybody...

On rent credits, do the lenders you have experience with allow the full rent credit (even at 100% credit) to come off the total loan amount, or are you finding they only allow the difference between what you charge and market rent as a RC?

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On rent credits, do the lenders you have experience with allow the full rent credit (even at 100% credit) to come off the total loan amount, or are you finding they only allow the difference between what you charge and market rent as a RC?
Depends upon the lender. Usually, if they are allowing the rent credits to be a part of the down payment, then it's the difference between what the market rent is determined to be and how much above that the t/b is paying.

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On rent credits, do the lenders you have experience with allow the full rent credit (even at 100% credit) to come off the total loan amount, or are you finding they only allow the difference between what you charge and market rent as a RC?
Depends upon the lender. Usually, if they are allowing the rent credits to be a part of the down payment, then it's the difference between what the market rent is determined to be and how much above that the t/b is paying.

 

Thanks MC, you're the best!

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