Lease options - how do credits to buyer work? - Posted by Joel David

Posted by Clint on June 13, 2006 at 11:53:10:

example
Condo sells to t/b for $100K
t/b puts down $7K (balance now 93K)
t/b pays monthly note of 775 with a 75 rent credit
(75*12=900) now we have 93K -900
They will go to finance 92,100.00

Best of luck

Clint

Lease options - how do credits to buyer work? - Posted by Joel David

Posted by Joel David on June 13, 2006 at 11:22:57:

I am also looking at selling a condo via a lease option. However, I am confused about how a financing bank for the tenant buyer will look at the credits.

So first of all, the T-B gives me option consideration and then the monthly rent credit - this I get. However, when the T-B then goes to exercise his option to buy it, what does the bank look at as his down payment and LTV? They do not give any additional “credit” for a difference between the option price and the current FMV price when the option is exercised do they?

If the TB has the $$ for the option consideration anyhow, what is the major benefit of a lease option for a tenant buyer?

Thanks -

Joel

Re: Lease options - how do credits to buyer work? - Posted by Eric (MI)

Posted by Eric (MI) on June 13, 2006 at 14:16:49:

Clint provided a good example. As for the reason that a person will buy on Lease Option even if they have enough money for the option is that in most cases the Option money is a LOT less than a down payment would be. Typically I see investors getting around 3-5% for an option payment whereas a down payment can cost 20%. In a $100,000 example that is a difference of $15k+ and it only goes up.