Posted by Bud Branstetter on April 21, 1999 at 22:34:44:
The 75% only credit for rental income is typical.
Seller’s reduced borrowing capacity - how much? - Posted by Chris Lewis
Posted by Chris Lewis on April 20, 1999 at 19:33:58:
Could someone help me out, please?
I would like to know what impact a lease/option deal, or ILC, would have on a seller’s borrowing capability.
For example, if someone thinks they need to cash out on their existing property before buying a new place, how true is it?
I read somewhere that a properly documented lease would allow about 75% of the income to be offset against the existing loan. Does that sound right? In which case I guess their borrowing capacity is only reduced by the shortfall between 75% of the rent and their existing loan, multiplied by the appropriate lending factor?
I am trying to get an idea of how to overcome a seller’s reluctance to do a deal because they can’t see how they can buy another property. I am not thinking about VA, or other special loans, where I understand there are different criteria in force.
Re: Seller’s reduced borrowing capacity - how much? - Posted by Alex Gurevich, TX
Posted by Alex Gurevich, TX on April 22, 1999 at 09:04:29:
Chris,
75% is a rule of thumb. But better yet, if the qualifying issue comes up, ask your seller to talk to their lender (I prefer to call the lender myself) to find out how much of lease,in $$ monthly, they’d need to have to make their debt to income ratio look good. Once in a while with a financially strong seller, you may discover it’s less than what you were willing to pay monthly.
Re: Seller’s reduced borrowing capacity - how much? - Posted by Bud Branstetter
Posted by Bud Branstetter on April 21, 1999 at 02:27:21:
To overcome a seller’s reluctance because they want to go get a new loan you have them do a contract of sale with you instead of a lease. Most lenders will not count the loan against them with a contract like they do with a straight lease. I still like them to put the title into a land trust. I then contract for sale with the land trust. In turn I lease option with the tenant buyer.
Re: Seller’s reduced borrowing capacity - how much? - Posted by Chris Lewis
Posted by Chris Lewis on April 21, 1999 at 18:40:22:
Bud
Thanks for your comments. I hadn’t thought of buying straight from the Trust, only the assignment/ILC sale route. Do you happen to know whether the other part of my email, about the allowance of 75% is correct?