Home Buying in Longmeadow>Question Details

Shira, Home Buyer in Longmeadow, MA

If I do a lease to purchase on a house, how much of my rent $ can go toward the actual purchase price?

Asked by Shira, Longmeadow, MA Sat Jun 12, 2010

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9
They hit the nail on the head there. NEGOTIATE. Don't throw your money away give me a call. Its a buyers market, my friend.
Christine Moran
413 263- 0333
1 vote Thank Flag Link Fri Jun 18, 2010
Very good answers, especially the one from Darin.

A couple of quick comments: It's all negotiable, but see some of the considerations that Darin lists.

Around where I am, a credit of 20%-25% is considered a nice, reasonable incentive for the tenant-buyer. It certainly can be more or less. And that's pretty much in line with Darin's 30%ish number. It's probably in that same general range where you are.

One other point to keep in mind: Even though the percentage may seem relatively low, it's interesting to compare the amount of the rent credit to an amortization schedule to see what you'd be paying off in principle on an amortized loan.

Around where I live, a home that costs $500,000 might rent for about $2,000. Your numbers, I'm sure, are different, but you can do the same analysis where you are.

If you bought a $500,000 home with FHA, you'd have a mortgage of $482,500. Your mortgage--principle and interest only--at 5% for 30 years would be $2,590. And your first payment would consist of $580 in principle and $2010 in interest.

Let's say you did a lease-option on the same home. Likely, you'd pay a bit above the going rental rate, with some of your payment credited toward purchase. Let's say you paid $2,300 with $500 credited toward the purchase. That'd work out to be a 22% rent credit. And that percentage is virtually identical to the 22% ($580/$2,290) amount of pay down on your mortgage.

The numbers swing even more in favor of a lease-option as interest rates rise and a smaller percentage of your monthly mortgage payment goes to principle.

Hope that helps.
1 vote Thank Flag Link Sun Jun 13, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Hey there Shira.......

You can receive just about any amount or percentage of Rent Credits doing a Lease-to-Own. But due to the changes in HUD, the seller can pretty much only contribute 3% as a seller concession..... so if your receiving a high amount of Rent Credits in your deal, then you would have to adjust the sales price. Your option consideration would be reflected as earnest monies as well.

You also have to take into account that many lenders will only allow the portion above fair market rent to count as a Rent Credit at closing. ***Example: Houses in your area typically rent for $1000 and you negotiate a rent of $1500 with a 100% Rent Credit...Many lenders will only count $500 per month towards closing.

When we put our deals together, we usually offer 30%ish of the monthly lease payments (in a 12 month lease) as a Rent Credit. These are then used by the tenant/buyer...from the seller.....as seller concessions. If we were to give any more, it would have to come off the homeowners/sellers purchase price.

The late, great and long time columnist Bob Bruss had sold many properties as a Lease Option. He once purchased a house and negotiated the lease for 15 YEARS! And he received 17% Rent Credits on it. I've included the link for you to read the story about the best Lease-to-Own transition he ever had.

http://www.lease-purchase-solutions.com/Lease-Option-Pros-an…

You just want to make sure that you select a Lender, FROM THE BEGINNING, who is familiar with Lease Options, and can structure the transaction correctly and efficiently for you. Many lenders say..."Sure, No Problem, we can put something like that together for you....yadda....yadda.....". YOUR question to them should be...."OK then, how many Lease Options have you put together in your career?"

Best wishes on your house search and CONGRATS on considering a Lease Option to buy your house!

Darin
Lease-to-Own Professional
Independent Consultant
1 vote Thank Flag Link Sun Jun 13, 2010
if i do a lease to purchase on a house how much of my rent $ can go towards the actual purchase price?
0 votes Thank Flag Link Sat May 31, 2014
Don..... Great example and explanation! Two thumbs up. (even though I can only "legally" give you one) :)

Darin
0 votes Thank Flag Link Sun Jun 13, 2010
Shira,

Usually the seller and rent to buy purchaser make an agreement that a specific amount of the monthly rent with a down payment at signing of the agreements will go towards the purchase.

Keep in that the seller/landlord will have to carry the propety until it closes and will probably take that into consideration.

Judy Bell
0 votes Thank Flag Link Sun Jun 13, 2010
Shira,

Terms of lease purchase agreements are varied and are determined by negotiations between the buyer and seller.

Keep in mind that the owner of a lease purchase property will likely try to protect their interests by requesting a sizable deposit toward the purchase.
0 votes Thank Flag Link Sun Jun 13, 2010
Just as in a purchase situation that piece is negotiated. Usually a certain amount is set aside to put towards the payment and the landlord can ask to keep some if you dont close.
Web Reference: http://www.mdmrealtyinc.com
0 votes Thank Flag Link Sun Jun 13, 2010
That gets determined between you and the landlord. Every situation is different. You also need to decide if you are going to set the purchase price now or at the time your lease is up and you decide to purchase. This would be best set up by an attorney. Have one work out the details for you and make sure you are comfortable with the terms before you get into anything.
0 votes Thank Flag Link Sun Jun 13, 2010
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