Using a Refinance Loan to purchase a Lease Option

11 Replies

I was reading a book by Matthew Chen that was written around the 2008 time frame.  The book is on Lease Options and he mentioned that when buyers were buying to exercise their option on a property, if they had lived there for a year or two they were able to get a refinance loan instead of a new purchase loan.  Is this still a viable option in todays market and if so how do I communicate this option to mortgage brokers?

Thanks in advance,


Would love to know about that! On the surface it seems sketchy. 

I agree.  I have to wonder if it is one of the techniques that may have been eliminated by the "new econonomy" but I am curious if it may still be a legal and viable option.

Guru BS.  If you don't own it, you can't "refi" it.  Renting doesn't give you that right.

The "new economy" has nothing to do with it. It depends on the option agreement if it is drafted as a purchase with an equity established, often financed options were seen as purchase agreements that could qualify them as a purchase contract. An option isn't a purchase contract that establishes an ownership interest regardless of how long a buyer has leased it, an old option that credited rents could be if it passed all the mess those cause to show equity.

The loan might be underwritten as a refinance but they will all be closed as a purchase money loan as the borrower is not in title.

I don't know Mr. Chen but sounds like there was some smoke being blown in your ear. Tenancy has nothing to do with how a mortgage is underwritten or closed, as it's based on title interests, not tenancy. :) 

Gurus love to teach BS, and everyone falls for it.

Joe Gore

Thanks for the detailed reply.  I agree, sounded like smoke but again, wanted to make sure I wasn't missing anything.

Thank you again.

@Sean Price   years back the lenders were more flexible on qualifications if you are refi'ing a house. So the theory was that if you were in an owner finance and made 12 payments you could refi it much easier than just a purchase loan. 

Some said the same thing about lease options, however, as stated above, you aren't refi'ing if you don't own it. 

Nowadays though refi guidelines are the same as purchase, so it doesn't matter anyway. 

Thanks John, that makes sense.


Pre-recession we sold a few this way. The underwriter just needed something like cancelled checks as proof that the monthly payments had been made on time each month (which was usually for more than the new projected mortgage payment) to be able to treat it as a refinance. Of course the buyer still had to qualify otherwise (income, credit score, etc) but again this was mostly pre-recession so who knows. Has anyone had any of their lease purchasers cash them out this way since say after 2012?


Before 2008 I actually bought a personal home using this technique.  The lender simply allowed us to exercise the option as a refinance.  

Is anyone aware of a lender still doing this?  



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