Re: Lease Purchase ? - Posted by WAREIA
Posted by WAREIA on August 24, 2009 at 14:13:01:
One of the issues sellers are having, especially in CA, is that lenders will not allow you to close on your new home until and unless you have closed on your old home. The exception to that is only if the seller can show they can afford both mortgages. Lenders are not allowing any percentage of Rent-to-Income Credits at all. You either sell the house outright or you don’t get your new home.
I’ve made many “Sub-To” type offers asking the Seller to leave their financing in place while we agree to be 100% responsible for the property. In many cases the Seller’s new lender, even if we have a long term net lease in place, are refusing to grant the loan if the seller can’t qualify with their current income to cover both mortgage payments.
The only success I’ve had lately with these is using a Land Trust combined with a Long Term Triple Net Lease. With the Net Lease in place some lenders are still giving a 100% RTI Credit to the Owner/Seller which actually improves their ability to borrow on a new home.
Yes, the Seller is ultimately responsible for the original mortgage if the resident defaults, but if the resident puts enough money in an escrow like contingency fund (typically two to three payments), then there is always enough to pay a month or two while they are evicted, if needed.
Over 9 years and 200 transactions I’ve only had to evict one resident/tenant.
There’s a lot to be said for just selling outright even if you don’t pocket anything. Its nice to have all the issues with some properties behind you and move on to the next, more profitable deal.