does option $$ go towards down payment? - Posted by Christen

Posted by Christen on August 17, 2003 at 09:38:44:

what lender are you going through? Treating it as a refi would work the appraisal came in at 75K and we estimated selling it at 65K. So 80% LTV is 60K plus a few grand down would work.

does option $$ go towards down payment? - Posted by Christen

Posted by Christen on August 16, 2003 at 18:49:22:

Quck question for those who lease option. I have a 65K house I am considering lease optioning. We have only owned it a few months and it is a rehab so all the b and c lenders that I know of won’t touch anything less than 6 -12 months ownership seasoning. I have someone with a 550 credit score who can qualify with 10% down, but they only have 2K. I lease option for 1 year with $400 perm month going towards down payment. Between the option $$ and rent credits in a year they have there 10% down, right? Will a lender go for that. Or will all that $$ go towards the purchase price?

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.

Re: does option $$ go towards down payment? - Posted by Jonathan RexfordFL

Posted by Jonathan RexfordFL on August 16, 2003 at 20:12:56:

Two schools of thoughts on the issue. I have had lenders use option money for down payments but more than likely it will be used against the purchase price because of the nature of the transcation some lenders treat it as a refi. I don’t agree with the concept because tech. Its not a refi. But in anycase he who has the gold makes the rules.

Now the real question will they allow you to give them credit for the 400 per month as you want to for down payment.

On a business issue I would not do it just in case your buyers goes sideways with you in 12 months…(been there done that) Its better to use the reduction part on your lease option agreements. Thats the way I have it in all my agreements. Currently I have two properties that I am giving 200 rent credit towards purchase price…I will let the lender worry about how to make his money.

Jonathan Rexford

Re: does option $$ go towards down payment? - Posted by keith hutson

Posted by keith hutson on August 16, 2003 at 22:52:07:

I am excersising my lease option now. The mortgage company is treating it as a re-fi. The best part is in the refi they are more willing to roll closing costs, points into the loan. With their credit score they can probably get 85 to 90% LTV. My score is a little lower so I qualified for 75-80%LTV