Re: does option $$ go towards down payment? - Posted by JohnBoy
Posted by JohnBoy on August 16, 2003 at 21:24:46:
As far as you are concerned, your contracts should state any option money and rent credits are towards the purchase price…NOT the down payment.
The lender can elect to credit that any way they choose. They can base the loan as a new purchase and base the purchase price on the reduced amount after your credits, or they can base the loan on the set purchase price and allow the option money and rent credits to be applied as down payment money. This will be the lender’s call as to how they will be willing to treat it.
The best way is to find a lender that would treat the loan as a refi vs. a purchase. Then the loan will be based on the appraised value where they will loan 90% of appraisal and down payment money won’t be an issue.
As far as rent credits, lenders will usually only allow any amount that exceeds the fair market rents to be used as credits towards a down payment. So if this house rents for $700, where you might get $900 rent on a L/O, and you gave $400 of that as rent credit, the lender will only allow $200 of that as down payment money. But again, if they treat it as refi then none of this should be an issue since the loan would be based on appraised value allowing a loan based on LTV on what ever amount they can qualify for.
What the tenant really needs to focus on is cleaning up their credit over the next 12 months. Then they can get their credit scores up where they might qualify for 95% or a $100% LTV. A 550 score is not that good meaning they either have credit issues that need to be cleaned up, or they have very little credit and need to get better established.