Hi everyone,

I met with a lender from Wells Fargo today to review the options that my tenant buyers would have as far as financing goes. I am following the lead of the poster who goes by the name of pilot76180. Even though i will just be doing c/a's i figured it would be good business practice to put t/b's in the house who have a real shot at getting a loan and not just putting in deadbeats into the houses. My intention was to have the option consideration count towards the purchase price of the house. The loan officer said this was fine but that the t/b would then have to come up with another 3.5% downpayment when they went to exercise their option to purchase. I was thinking that my assignment fee would be counted towards that downpayment but she said it won't unless the seller or me puts it into an escrow account. If that' s the case then i wouldn't be bothered doing the deal because i would not be getting paid. To me this was a great selling point with the buyer but if the option consideration doesn't get counted toward the dp then what's the probability that the t/b can come up with the additional funds to close? I'm sure not very good.

So if the seller agreed to sell the house for 150 and my fee was 10k for example. Then she said that there would have to be a purchase and sale agreement for 140 and that rent credits would be taken off that price as long as rent was at market and not above. So the t/b would have to come up with 3.5% of 140 minus rent credits.

What is everyone experiencing as far as this goes? Am i going to have to tell t/b's that they have to come up with another 3.5% when they decide to buy? In my contracts i have my assignment fee being credited toward the price of the home.


thanks,
Rosanna

Hi Rosanna,
The post made last week has some good info in it. I break down the loan structure in there somewhere.
Hope it helps!
Here is the link:
http://www.naked-investor.com/forums/index...?showtopic=7545

The problem is you are dealing with a major bank who, even in the best of times, tend to be traditional and conservative with their loan programs. I think you'll find better options if you were to speak with a mortgage broker or two. They have access to many more lenders and investors who he can get a package from that will fit the needs of your t/b's. Have you tried attending a local REIC? There may be some investor friendly mortgage brokers who can help you.

I hate to admit this...but MC is....right....the problem Rosanna is you went to Wells Fargo. Keep in mind what the background is for any "LO" for a big bank. Think about what they were doing a month ago...they were handing out suckers at the drive thru window.....seriously....
They work at a bank, the manager spends $250 to send the sucker drive thru person to LO training, and in one week..BAM! They are putting together freaking loans!!! SCARY!!!!
You need to find an independent broker or a LO for a Broker that understands how the world revolves.
I was talking to a lady at a Compass bank that was trying to sell me on refi ing my house (not knowing what I do for a living) and she didn't even know that when you purchase or refi you skip a payment. She didn't know interest is paid in arrears. ARE YOU FREAKING KIDDING ME?!?!??!?!

Rosanna, Would this be a rural property? outside of a major city limits. If so they should be able to get a USDA RD loan which requires no downpayment. Herbster

What's that saying? Oh, yeah: even a broken clock is right twice a day.

I think that is Awesome. You can do this by screening any potential tenant/buyer well before placing them in the property.

What I have done in the past with my SLOs is to release the seller from my agreement and have the tenant/buyer purchase the house directly from the seller. I charge the seller a release fee, paid after closing (back end profit) and I am out of the deal. The tenant/buyer (not me) completes a simple purchase agreement with the seller that is then given to the lender to process the loan. The option consideration is earnest money or a deposit put down buy the buyer and is considered part of the down payment. The rent credits have reduced the price. If the buyer wants help with closing cost, the price goes back up 2% to 3% and the seller pays the buyers closing cost, the full amount allowed is determined by the lender. The seller and buyer go to the closing, not me I'm out. And it's done.

This has worked with CAs too, and of course with a CA it is assigned.

Now I don't know if the tenant/buyer's financing was FHA, conventional or what. I don't care as I stay out of the buyer's financing and it has worked fine. You can also check out the pinned thread in the Lease Purchase Forum "Option Release From Seller" that was my first try at it

I wouldn't give up. Be creative and straight with everyone and keep it simple.


. . . thanks Jonathan & Adam

Thanks everyone for the responses! I will contact the other mortgage brokers i know and discuss this with them. I figured that since FHA is a standard loan program regardless of the lender it channels through that i wouldn't get a different response from Wells Fargo vs someone else. I will report back after i talk to them. Can't wait! This is the final piece i want to put together so i can speak with confidence in front of seller and buyers.

John,

If you are giving a rent credit, do you reflect that the bank won't allow more than 6% in seller concessions in your lease option agreement? What do you say to the t/b? I don't currently make any mention of it and wouldn't want the t/b to be very unpleasantly surprised down the road if they exercise!


Thanks a bunch,
Rosanna

Steve,

Thanks for the reply. When you say the rent credits have reduced the price -that is how i have my contracts structured. So in your case did the rent credits exceed 6% of the purchase price? I never thought of the bank capping the rent credits in my contract. I will check out the pinned thread later after the kids are in bed!

thanks a bunch,

Rosanna

Yes, I am sure they do. In the example I mentioned above, the purchase agreement completed between the buyer and seller states the new purchase price. Rent credits are a moot point as the lower purchase price reflects the result of the rent credits.

The pinned thread was about other ways to close a SLO deal without doing a double close, but I think the idea fits well with this issue. This is just another way to get the deal closed.

As a mortgage broker another Idea that I came up with is this. Here are the documents and steps I would take.

T/B signs the following documents
1. T/B signes Coopertive Assignment- Example 4% check made out to the title company.
2. T/B signes Lease for 1 year
3. T/B signes Option for one year say 100,000 - 4000 or 4%
4. T/B signes Sales Contract to close in 1 year,Contract reads 100,000 - $4000 Contract reads Balance owed on contact is 96,000
5. Seller signs Affidavit not to take out anymore liens on the home while under contact to sell.

WIth the sales contract between buyer and seller for 100,000 - 4000 depost check made out to the title company 4% the title comapny can then cut me a check 4000- prelime title and cost of having the buyer and seller meet in the title office to re sign docs for the assignment of Lease/ OPtion. THis way title company can do a title search for the T/B make sure if the option is for 100k that he owes less thank 100k and seller can excersie his option. And I would pay the title company for a prelim title search have buyer and seller meet at the title company to executed all documents.. I was also thinking of having a 3rd party escrow company recieve the T/B rent to ensure them that the Seller is making the payments to the mortgage company. I think it would give the T/b more confidence knowing a third party was collecting and making the payments and they dont have to worry about a foreclosure because seller is not making payments. ANd when the buyer goes to exsercise his or her option the bank will see the depoist made out to title.

Not having done this yet I think this would be the best way to get the buyers OPTION/ Downpayment counted towards the purchase price and create value by hiring an esrow company, doing title search ect.


Any thoughts?

Thanks
Thomas Martin

Our rent credits are clearly stated in the Option to Purchase. Although they are calculated on a monthly amount, all we care about at finance is the TOTAL rent credit. Our docs state that at any time they purchase, they get the full amount of rent credits. And yes we ALWAYS tell the T/B this, as this is a HUGE thing for them. To have a big portion of their closing costs covered. We don't discuss the 6% rule, because we don't offer that much rent credit. Normally our rent credits calculate to be about 25% or so of the monthly payment. You WANT to tell the t/b about the rent credit though! Why wouldn't you?

Rosanna


Yes that would be a big selling point.

" look bob your not going to get equity paydown by renting, and your paying down equity 3x faster because there is No Interest on your payments"

This thread and others relating to financing issues have been great and to see what others are doing now that the mortgage industry has changed from what was going on and is extremely helpful.

What really sparked my interest is the ability to have a higher percentage of tenant/buyers get financing and buy. Understanding how mortgages work, being responsible and screening potential tenant/buyers well is good business, but it is still not a perfect science.

In a past thread it stated a high percentage, like 80%, of tenant/buyers are purchasing by following through with a tenant/buyer to get financed. One way I have understood this being accomplished is having a good relationship with an investor friendly lender / credit repair / title company and keeping the tenant/buyer motivated to buy. In the past at times I have had the tenant/buyer and seller use a separate purchase agreement when the option is exercised that is more easily understood and acceptable by a lender. I am still however finding it difficult accepting an 80% purchasing success in today's economy?