Is a rent to own deal doable with an existing mortgage mortgage?

4 Replies

@Claire Nichols

Disclaimer: I am not an attorney; speak to one before doing anything.

There should not be an issue with renting a property in Florida with an option to buy. Since it is not how most people rent/purchase; both parties should pass it by council first before signing. When you purchase the property, you will bring your own financing and then the seller will pay off their note.

Now, it sounds like you want to take over the seller's mortgage when you purchase. When purchasing a property that has conventional, residential debt on it, most lenders have clauses in the mortgage that require payment in full if the property changes owners (due-on-sale clause). There are ways to purchase the property without triggering this but this is a more complex process. This would be called a "subject to" deal and you need to have a title company and attorney on your team that have done this before. This is where I would start.

I'm not in Florida, but generally speaking, yes. The current mortgage holder would execute a lease options/rent to own contact with a tenant. At the end of the lease they would sell the house or evict the tenant if they didn't want to buy. But it's just a landlord situation until the lease term is up.

Definitely consult a lawyer for a rent to own contract. In Washington, it's a couple documents for this instead of just the rental agreement. 

@Claire Nichols

1. You first have to read what your existing mortgage says

2. Most states allow it but the rent to own option must be greater than the amount you own

3. You should consult with your attorney about it as well as an underwriter and MLO since it appears a portion of the payments are going to provide the buyer an equity interest and therefore make sure you meet FDCPA, CFPB, RESPA and consumer finance laws.

These are very High risk for both parties- for example if they trash the place and walk away, you basically will have very little recourse and could be stuck with a home that needs a lot of repairs and is underwater

For them if you were to ever stop paying the mortgage the property could be foreclosed upon and they lose everything they paid.

This is why I would not recommend this type of arrangement

@Claire Nichols you have gotten good answers. I will just add that you have left out important details. Are you the one who currently owns it and wants to rent it with the option to buy?  Or are you a prospective tenant/buyer who wants to get the property?

If it is the second case above, are you going to try to do a "Sandwich Lease Option" where you rent the property and then sublet it to someone else with the option to buy?

I see you are an agent so possibly you want to be an agent in this transaction for someone else.

Why do you ask if the existing lender cares. Of course if someone has a mortgage they can rent their property. The fact you ask says you want to do something creative you haven't mentioned.