Beginner questions on lease option or creative financing deal

3 Replies

Hello 

Ive browsed through the forums but am still a bit lost and could use some help.

Ive got a rehabbed property with a great conventional loan. My Agent and I have not been able to sell the property and we are looking at offering the property as a lease purchase and or offering seller financing.  We would offer the property for $240,000 with monthly payments of $1600.  Ive asked for a 3-5% option fee with a 1 yr term. 

my agent has responded with some questions that I'm not sure how to respond to... for instance..

We should require at least 10k with a percentage of that being escrowed to be applied to their down payment. A 240k PP with FHA will require $8500 down payment when 12 month term expires. Is it realistic to think they can put 10k down and come up with another 8500 in 12 months?

I think i need a better understanding of the difference between a down payment and the option fee.  Plus in order to comply with DF I'm not sure i could hold any of the option fee to be applied to a down payment in a year. Have a few other questions but wanted to start with this one.

TIA

George,
The first mistake is using an Agent to do a lease option.  No need for her to be involved.  It costs you money and usually mucks up the works, as you see is happening now.  
Real world expectations would be about 3% down as nonrefundable option consideration.  This applies in full to the purchase price if/when the option to purchase is exercised.  If not, the tenant/buyer walks away from that and it's yours.
Now whether or not that money can be applied as down payment or a credit to the purchase price is dependent upon the chosen lender.  It isn't up to you.  To be safe the option agreement should state that option consideration will be credited towards the purchase of the property.

Originally posted by @George Ramsay:

Hello 

Ive browsed through the forums but am still a bit lost and could use some help.

Ive got a rehabbed property with a great conventional loan. My Agent and I have not been able to sell the property and we are looking at offering the property as a lease purchase and or offering seller financing.  We would offer the property for $240,000 with monthly payments of $1600.  Ive asked for a 3-5% option fee with a 1 yr term. 

my agent has responded with some questions that I'm not sure how to respond to... for instance..

We should require at least 10k with a percentage of that being escrowed to be applied to their down payment. A 240k PP with FHA will require $8500 down payment when 12 month term expires. Is it realistic to think they can put 10k down and come up with another 8500 in 12 months?

I think i need a better understanding of the difference between a down payment and the option fee.  Plus in order to comply with DF I'm not sure i could hold any of the option fee to be applied to a down payment in a year. Have a few other questions but wanted to start with this one.

TIA

 I'd do a delayed sale and purchase agreement with 10% down as earnest money

Check with your agent as far as what earnest money is nonrefundable legally

I'd get an FHA appraisal so the buyer feels comfortable about the sales price, and Id have the buyer pay all closing costs

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Thanks Guys, 

One idea that came my way was that if the buyer performs then the option fee gets deducted off the purchase price at closing.  Per dodds frank no other concessions can be made except for pre-paid closing items