Re: Getting a mortgage with a Lease/Purchase?? - Posted by JPiper
Posted by JPiper on February 19, 2001 at 09:04:30:
As Phil said, there?s no way to tell when a tenant/buyer is going to exercise their option?.if ever. It is going to depend on their credit. And it is going to depend on the state of the lending market at the time the tenant/buyer attempts to get their loan.
There?s nothing etched in stone as to what guidelines the lenders have to view borrowers under. Today for example they may well view the borrow under rather liberal standards. Tomorrow that may all change?.you don?t know. Today the rate may be 7%. Next year the rate for prime borrowers may be 10%?again, no way of predicting. But certainly the level of rate may drive the ability of the tenant/borrower to finance the specific size of loan necessary.
It may also be that the tenant/buyer will decide he doesn?t like your house?.may decide to walk. The option doesn?t force him to buy?.it merely gives him the right to buy.
For the above reasons, and many others, you would be well-advised not to obtain very short term financing. You could obviously sell the property if for some reason the tenant/buyer doesn?t exercise?but then again, even that will depend on how good the market is at the time. Likewise, there?s no guarantee that you?ll be able to refi in one year either?.who knows what the lending market will be at that time. You don?t want to put yourself in a position where everything has to go right for you to come out on the deal.
I would be looking for more permanent financing if I were you. I?d want something that amortized?let?s say over 30 years. I?d want something that was fixed rate. If I were interested in something with a balloon I would look at the rate versus straight 30 year financing?see what the advantage is. I?d want a significant advantage to do the balloon. And I would want my balloon to be a minimum of 5 years?.not one year.
By the way, in my experience not many people actually go out to look for financing. YOU need to be proactive in this area?otherwise, it may not happen at all. Also, where did you get this idea about doing the ?purchase agreement?? I do a lease, and an option?.period. I would say that the purchase agreement creates some risks that I personally would not take.