Getting a mortgage with a Lease/Purchase?? - Posted by Carey_PA

Posted by phil fernandez on February 18, 2001 at 18:07:04:

OK then you’ll need some kind of financing to pay the bank. You are just using the lease option as a marketing tool to attract a buyer quickly.

Then in that case you will have to secure some type of financing, no question about it.

But to answer your question, “how long does it take for your tenant/buyer to get a mortgage.” It will depend on what type of tenant/buyer you get. If their credit isn’t bad and they have a downpayment they could go to the bank within the one year option period and it should take 45 days give or take, just like anyone applying for a bank mortgage. Where it might take longer is if the credit isn/t so good and or they don’t have a saved up downpayment, then they should start right after they signed on to your lease/option to start to work to clear up there credit glitches and start to systematically save for their downpayment.

In other words you will have to help position your tenant/ buyer so that they will be able to qualify for financing before their option runs out.

Getting a mortgage with a Lease/Purchase?? - Posted by Carey_PA

Posted by Carey_PA on February 18, 2001 at 11:11:19:

I’ve got a quick question for all of you that sell your properties by Lease/Purchase…

Now, I’m assuming that you enter into a 1 yr. lease with your tenant/buyer and obviously they also fill out a purchase agreement, but my question is HOW long does it usually take for them to act on the purchase agreement and to get a mortgage? Does it usually take the full year or do they usually need/want more time than that?

I’m trying to figure exactly what type of financing I should get from the banker. I was thinking about 1yr. w/ interest only payments, but then obviously I’d have to refinance at the end of the year if the T/B wasn’t prepared to buy then…am I right?? Do you think I’d have trouble refinancing at about 1 yr.? I don’t, but then again I’ve never been involved with this type of transaction before…



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.


Re: Getting a mortgage with a Lease/Purchase?? - Posted by phil fernandez

Posted by phil fernandez on February 18, 2001 at 17:34:19:

Hi Carey,

With a lease option deal I wouldn’t get permanent financing. It’s way too costly with points, bank fees, appraisals, title costs etc. In fact there’s no reason to use bank financing at all.
That’s one of the beauty’s of the lease option deal.

You are lease optioning the property from your seller and then lease optioning it to your tenant / buyer. Your seller doesn’t get cashed out until your buyer excercises his option to buy.

The option money you give to your seller is recouped from your tenant/ buyer. Likewise the rent you pay the seller comes from your tenant/ buyer. A lease option can really be looked at as interim financing. But the bank or hard money loans are not required.

Re: Getting a mortgage with a Lease/Purchase?? - Posted by Carey_PA

Posted by Carey_PA on February 19, 2001 at 21:16:56:


Thanks for the great advice…and you were right I did mean purchase option and NOT purchase agreement.
I read through your post and thought it through and realized that it makes a lot of sense and I agree with it and I’m gonna go for the long term financing. (this banker probably thinks I’m nuts, I’m always changing my mind) But then again he’s always throwing out new ideas at me…anyway, thanks a lot Jim. BTW, I’m looking forward to talking to you in Atlanta about low-income properties :slight_smile:

see ya there,


let me re-state my question - Posted by Carey_PA

Posted by Carey_PA on February 18, 2001 at 17:53:18:


I’m Not using a lease/option to buy the property. I would have if I could have, but it was a bank foreclosure and they wouldn’t have went for it. (I got the property at 50% of it’s fmv though :slight_smile:

Anyway, I’m fixing the property up (minor stuff) and then I’m going to sell it via the lease/purchase method. I figure this will give me some time to work through that WELL/Vacant land issue that I posted about before.

But I am wondering how long does a tenant/buyer usually take to get a mortgage, does it depend on me helping them or do they usually take the whole lease term?