Lease w/ option

[Supmom810]

What is the name of your state? FL
We are purchasing a house and the owner is willing to owner finance up to 12 years. We are signing a Contract to Purchase as well as a Lease agreement. In the contract it states the closing will be Jan. 1, 2017 with an addendum to close early with 30 days written notice with no penalties. In the lease it states "For purposes of this Agreement, rent shall include monthly rent, late fees, penalties, unpaid utility or other charges and real estate taxes and insurance." Our lease amount is based on a 45 year schedule at 8.875 interest. Since most of our lease payments will be interest at first, will we still beable to write off the interest on our taxes since this is owner financing?
I'm sorry if I posted this question here if it doesn't belong here, but was unsure where to post. We realize the interest is high, but need to work on paying down some debt before we are able to get a conventional mortgage with lower interest. With Florida realestate rising like it is, it is our chance to lock in to todays prices.
Thanks in advance for any advice.

 

[Bigfoot]

The deed will not be in your name until you close, so it sounds like the owner still gets all the benefits. If you can clear up your credit issues within 5 years, why not consider just renting from this person or someone else until you can become the legal owner in a shorter amount of time?

 

[seniorjudge]

This is another of the many reasons that these installment land contracts/rent to own/lease with option deals are bad.

You can try to get conventional financing; there are tons of lenders out there waiting to loan you money.

 

[HomeGuru]

This is another of the many reasons that these installment land contracts/rent to own/lease with option deals are bad.

You can try to get conventional financing; there are tons of lenders out there waiting to loan you money.

**A: I am getting a bit tired of your generalizations.

 

[seniorjudge]

"**A: I am getting a bit tired of your generalizations."

Any one in particular?

 

[HomeGuru]

"**A: I am getting a bit tired of your generalizations."

Any one in particular?

**A: not specifically, but I reserve the right to name one in the future.

 

[Supmom810]

The deed will not be in your name until you close, so it sounds like the owner still gets all the benefits. If you can clear up your credit issues within 5 years, why not consider just renting from this person or someone else until you can become the legal owner in a shorter amount of time?

This is pretty much what we are doing, but he is including interest, taxes and insurance on our rent. We should beable to have our credit cleared up within a year. Our scores are only 577 & 566 and we are having a hard time finding someone willing to give us a loan. Any suggestions?

 

[seniorjudge]

"...Any suggestions?...."

Like I said, look around for another lender.

There are plenty of B and C lenders around for folks with bad credit, especially where y'all live.

Cut down and pay your bills on time and don't use credit cards.

You can rebuild your credit but it's going to take hard work. It is a lot easier and a lot more fun to screw up your credit than it is to repair it, but you can do it if you try.

 

[nextwife]

First, talk to a homebuying counselor at one of the neighborhood homebuyers organizations or a community lending officer at a local bank/thrift that has an ongoing precense in your community. They can help you get your credit on track, plan for eventual homeownership. They can also inform you of any state, city or local programs that exist to help buyers with little down and a history of damaged credit. You need to be fully informed of your options. In my market at least, there are several bank systems that have one or two dedicated individuals whose job it is to help future homebuyers work out a plan to correct their credit and save their downstroke. They can also inform you of any closing cost assistance programs for which you may qualify. In my state, there are several great programs. Even some businesses, such as hospitals, have programs to help parties buy and occupy in their neighborhood (as a stablizing force) I have no idea what is offered in your state.

Sounds as though this is being set up as a triple net lease, meaning you carry all the costs. Make no mistake, it is a LEASE until you exercise your option and BUY. This is another reason to seek counsel from both an attorney and a lending officer. It is important that, IF you do proceed with such an agreement

a. you know what the underwriting quidelines may be for financing whenever you wish to complete the "buy". I've seen such agreements state, for example, that 50% shall be applied toward downpayment, YET, the LENDER may NOT allow such an amount to be credited for underwriting purposes as it may appear that the seller is kicking back the downpayment.

b. Never enter into such an agreement without having a recordable option instrument, reviewed by an attorney, and placed of record.

c. Never enter into such an agreement without having a title search done, so you know what ther condition of title may be. In commercial RE, I don't know anyone who'd consider buying into an option without getting a full title search and recording their option to protect their interest.

Personally, I've seen closing statements from many B&C paper lenders.. and you are better off waiting and cleaning up your credit than way overpaying in interest and points. I think it's one thing to need to temporarilly use a C paper loan to SAVE your house, it's another to buy that way. I've seen too many people get KILLED on rate and points using C paper loans. I'd rather see someone avoid that.

 

[Florid-aise]

Nexie, you are going to have to write a book. This is real good stuff.

But because it is my nature, I would like to throw this one point up in the air.

It is better to pay 18% interest towards ownership than to pay a partner 50%.

Your thoughts on that?

 

[nextwife]

It is better to pay 18% interest towards ownership than to pay a partner 50%. Your thoughts on that?

??????

What partner are you referring to? I saw no "partner" mentioned in this thread. 50% of what?

 

[Florid-aise]

I see your point nexie. Let me clarify it somewhat.

When the opportunity arises for home ownership, a difficult decision is to be made, "can we afford it?" - and that decision is based on nothing less than the ability to acquire financing in the first instance.

I wholeheartedly agree with both you and SJ that the better practice is to repair damaged credit and seek the high road, but the reality of realty is that people want the darn stuff and will do just about anything to get it - if and when it can be got. Including Contracts for Purchase, and Option Agreements, etc.

Although inadvisable in a great number of instances, (to opt for the Option route, for example), can it be said, that risky credit risks, paying a higher interest rate, that both parties are getting what they deserve? The home buyer, the chance and opportunity to own a home; and the lender at higher rates, the chance to make some dough for taking the elevated risk.

You point out that the OP says nothing about a "partner", you would be correct.

My point is that even at higher interest rates, coupled with your absolute accurate "a-b-c's", wouldn't that higher interest rate be better for those willing to take that chance (the buyer -and- a C lender), than for example, splitting a home purchase business investment 50-50 with a business partner? [That is what I failed to make more clear in my previous post.]

 

[nextwife]

A home is a home. It is NOT a business. While it makes perfect sense to buy a biusiness or an invetsment property with a "partner", one's HOME should not be bought with the idea that this is a business opportunity. There are intangeable, quality of life factors that go into ones home. They may not necessarilly be smart business-wise, but may affect the way we feel about the place where we live.

Treat it as a business and they will run into all sorts of problems. Partner may be ready to get his money out but family wants to stay and can't afford to finance him out. Now what? They end up facing a partition sale. Family wants to paint and decorate to their tastes- they live there after all, but partner feels it will hurt eventual resale value.

If a family cannot afford the home they want, maybe they should downsize their expectaions and get into a home they can better afford to start out. Sure, many want "land", a "place in the country" a fireplace, a bedroom for each kid, etc. However, it may be more advisable to lower one's buying expectations on their first house, build up some equity THEN move on toward the "dream house.

My answer is NO NO NO. Do not make your HOME purchase a business partnership. It will come back and bite you in the b***. Buy what you can afford without bringing in someone else as a co-buyer who is not at all vested in what living there means.

 

[Florid-aise]

Thank you nexie. That is exactly why I asked you the question. And just as I expected, you knocked it out of the park.

Hey Supermom810, you getting all of this? The seminar you would have go to in order to get these answers, would cost more than what you have paid this day.

 

[Supmom810]

Thanks Nextwife and Flori-aise (and all who responded)
We did have someone look over the contract and it is just basic contract for purchase and sale. All of the downpayment will go towards the purchase and the owner has given us a copy of clean title and also provides in the contract a guarentee of clean title when we exercise our option to buy. He is paying all closing costs as well.
We have owned a house for 12 years up until about 2 years ago, we sold with intentions of building right away, but unfortunately our youngest son got sick, ex husband didnt pay health insurance, had to take all the money we had for downpayment at the time and pay for his surgery upfront. So that put things on hold. With missing so much work to take care of him, maxed charge cards, had additional medical bills, which now some are in collections. We are trying hard and realize we need to get our credit where it was before.
My father is offering to buy the house, he has a 720 credit score and we just pay the mortgage & escrow payments to him. If at all possible I will be a cosigner on the loan. I gave him and my mother money for their down payment 5 years ago, so dad is willing to help us out now.
My next question is, since my father already has a house with a mortgage (but lots of equity) and that is his main residence, will it be hard for him to get another mortgage at the lower rates? Would this be considered an investment/rental property for him?
Sorry for all the questions. Although our payments are high on our current contract, we can afford the payments, but would much rather use the money to pay down some stuff.
Thanks again.