I was speaking to a few FHA lenders about rent credit and came up with an idea and wanted some feedback.

Right now under FHA guidliness if the seller gives the buyer rent credit it will only count towards the downpayment if its above the market value for rents.
For example if your charging 1000 per month and giving 200 rent credit then an FHA appriaser must state the market value for rents is 800 per month.
THe FHA appriaser must take two recent sales and two listings to determine the market rent.

Rather than crediting the rent towards the purchase price. Maybe have verbage in the contract that credits the rent credit towards the purchase price.
SO of example a lease option for 100,000 and the buyer is credited 200 per month, 12 at the end of the year the buyer would have 2400 in rent credit.

You option could say seller aggrees to execute new contract at the end of the lease crediting buyer 200 per month when T/b decides to excersie her or his option to purchase..

In this example the buyer would now to purchasing the home for 100,000- 2400 in rent credit = $97,600 purchase price.

Any thoughts? I think the rent credit is a real incentive for a T/b to purchase the home and I was looking for a way to make this happen.

Thanks
THomas
http://www.fhamortgageprograms.com/

That is what I do, but I offer a 50% to 100% rent credit. How is that for building equity quick! Can't beat it. Lenders and others love it because the loan-to-value is lower. Lenders recognize that equity build up. It's sweet. I will also let the t/b know that if their lender allows the rent credits to be used as all or part of the down payment they can surly do that too. In addition, the t/b can use the rent credits to help pay closing cost. Also, the first time home buyer's program offer 3% to 6% down payment assistance that can come from rent credits. I leave the rent credits flexible for the tenant/buyer and they can use it anyway that best suits them.

what type of loans are you qualifying your buyers for Conventional?

Thomas-

I have nothing to do with the financing. If the tenant/buyer wants to exercise their option, they would need to obtain and qualify for their own financing. If they can't do that a rent-to-own is something they may not want to do.

Hi;
That's what most do here, and what I offer, although like MC says, it depends on the lender whether or not they will accept the rent credits as going towards the down or the price, etc.
However, how does everyone deal with the price of the house? I, and most, typically adjust the sales price upwards to reflect the option payment and rent credits, so the lender really isn't getting a better LTV as you mentioned. If the seller asks 100K and you sell to a t/b for 108K or so, the end purchase price is 100K; unless I've been doing it wrong!

Eric

That makes sense thanks

I made a post a long time ago about the structure of the rent credits, so here is a copy of the post:

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."


As far as the "rent must be $1k if you are giving a $200 rc etc," that is untrue. In 7 years I've never had an issue. It used to be that there were some A paper lenders that looked at it that way, but all it is is a seller concession. A seller can contribute up to 6%. If I have a house that's $1300 a month with a $400 rc, the lender doesn't look at market rent. If a loan officer tells you that, it simply means you need to find a new LO.

That's an excellent post John (pilot71680) worth printing out and keeping as a reference.

Eric, in your example the $108K is the purchase price to the tenant/buyer. After rent credits and option consideration the balance due at close is $100K (the $100K is not an adjusted purchase price per say). The tenant/buyer has built up $8K in equity. When you did your comps the market value should have been $108K or higher, so all is good. The loan to value is lower due to the equity built up.

Now for financing, I look at this from the extremes of an SLO, so not being a lender, I don't want a tenant/buyer coming back to me later saying "Well you said..." Nothing is cut and dry as you can see from John's post above. There are a lot of varialbles, so this is when I turn it over to the tenant/buyer and let them do their due diligence. I recommend that they contact a few lenders themselves, let the lender plug in the variables to fit their situation. And if the t/b follows through with checking things out before move-in, I want them in my property. Those are the ones' that buy.

Do lenders really treat the assignment fee as earnest money if it went into the pocket of the CA investor and not to the seller directly? If this is true then this truly is an awesome way to get a deal cashed out for your sellers.

As has been discussed here many times, each lender has their own rules and methods for dealing with option money and rent credits. The t/b needs to shop around for a lender who will get them the terms they can live with.

Yes I understand that every lender is different and it is very difficult to find a lender/underwriter/broker that knows what he/she is talking about. So this is why I was mainly referring to Pilot's reference to FHA lending guidelines. Pilot, is there a specific bank/mortgage company that is allowing a t/b's option money on a CA to be counted towards the FHA's 3.5% down and also allowing rent credits to be used as seller concessions? If this is true then I believe the FHA programs have the same guidelines no matter what lender you use so therefore it would work on any FHA purchase and would really help us talk up the selling points of a CA.

FHA has their guidelines set by HUD. When you talk to a loan officer, that LO is working under a banker or broker. The difference is the banker will often times have their own set of rules that may include that any FHA loans first be sent "in house" which means that banker has first dibs, but they may have their own rules that may be additional hurdles.
As far as an actual lender, I can probably get a list of a few that we utilize. Keep in mind though, it's not really the lender, as it comes down to the LO packaging the file for underwriting. We are specifically partnered up with a branch manager that has been with us for years that was put in place specifically for our program.
I'm not sure if I'm allowed to post this info, but I'd be more than happy to pass her info along, as she is set up in 48 states, and she knows how to put the deals together, as this is what she does and has done for almost 7 years for us!
If MC gives me the clearance, I can pass her info along to everyone.
I'll wait to hear from the Postulate of Plantation.

Permission granted, my minion. I'm assuming I receive a point for every loan this money-honey writes?

FYI you cannot get paid a mortgage broker or real estate commission unless you have a license.

But it would be a good idea to share lenders and findout what lenders are allowing the T/B to use the option money towards the purchase.

If anyone has a lender in FLorida allowing please let me know.

Thanks
Thomas Martin
http://www.fhamortgageprograms.com/

Thomas.... I pretty sure Michael was only kidding about getting paid.

I'd love to have that info! Thanks so much!

Rosanna

Note to self...create forum that sends me kick backs for any transaction that occurs due to the forum.....
HA!
Let me give her a heads up first, then I'll post the info here.
She JUST, this week, switched to a banker that has a far greater latitude on guidelines, so let me get her blessings first....
Keep in mind, that once I post her info, I will also post a list of specific criteria that your t/b's must have before contacting her.
ie. utility collections paid etc.

Don't forget pics of our new money-honey, John. Not for me, of course. I was thinking of Jason (AL).

I was going to post a picture of Carmen Electra here for the heck of it.....but I better not.
I talked to her and she's getting set up with the new banker next week, so I'll be sure to post everything once she's set up....
oh what the heck......
Here you go.....
Enjoy you pervs....

Click to view attachment

I'm just wondering where she puts all the money? I mean, I don't see any pockets anywhere.

Thanks for thinking of a feller, MC!
I've yet to download that link, is it hot?

I humbly await your response.