Home Buying in Minneapolis>Question Details

jedordt11, Home Buyer in Minneapolis, MN

Seller has a mortgage so can't do a CFD. Seller is offering a lease. I'd like to "rent to own" this property. How can I?

Asked by jedordt11, Minneapolis, MN Sat Mar 30, 2013

accomplish this?

Help the community by answering this question:


If you have a conventional loan and are not underwater you can most likely do a CFD just FYI. I advertised it on my dad's listing over the past month, but now we are taking it off to do some work on it.

Don explained the mechanics pretty darn well on how to create a lease option contract. I still don't know why there are haters on these contracts. You can be an idiot with a CFD just as you can with traditional financing and the same with lease option. What is it 54% or something for FHA DTI right now? Yea that kind of idiot thing I am talking about.

Not everyone has 10-20% down to put on a CFD, so to me this route is an excellent option if done right. No matter what seller financing is always meant to be short term until you can refinance. Many people think these deals don't work because the seller scams you or something, but still the #1 reason is that tenants fail to refinance and get new financing. You must understand what it will take for you to get financed traditionally. There are bad deals out there just like bad sellers don't get me wrong.

If you ever have specific questions feel free to hit me up. Certainly a title company will be key to you, but I never have a problem telling people to use an attorney. Education is key to making sure you don't get into a bad contract.

Good Luck!

Realtor North/NE suburbs
0 votes Thank Flag Link Mon Apr 15, 2013
There are a few mortgages (older) that may not have a due on sale clause that may allow the seller to offer C4D. Rent to own is a buyer's worst option! A better solution may be to meet with a Realtor (on your side) and a mortgage professional and put together a program or schedule of what you have to accomplish, and when, so that you are able to take advantage of this market and financing.
Web Reference: http://www.mywra.net
0 votes Thank Flag Link Sun Mar 31, 2013
The short answer to your question is, "you might not be able to". What matters most, is what the seller's objectives are. If the seller is offering a lease, apparently, a lease is agreeable to the seller. I own rental properties. I'm OK with leasing them or renting them, but I have no interest in selling them, so I would not enter into a "rent to own" agreement. So, for starters, ask the seller if he would be open to such an arrangement.

If you and the seller can agree on the details, then to make those details into a binding contract, you might need an attorney.

Understand that the seller is likely represented by an agent who likely gets paid only if the property is sold (not rented or leased) and many "rent to own" agreements are in the "gray area" of whether or not the agent is deserving of a commission. It depends on whether or not the agreement could be considered to be a "purchase agreement", which depends on how it's written.

From your standpoint, no matter what the agreement says, look at it as a lease on a home that you may or may not be able to actually obtain at some point in the future. So, look at it simply as a lease. If possible, don't pay extra for the right to purchase. You might simply say, Hey...I'll sign a lease, with the understanding that if at some point in the future, you decide to sell, and I happen to
.....Wait!!!....you know what? Mark (see below), is probably right. Just because something "can" be done, doesn't mean it's a good idea. Just lease the thing....and when you are ready to buy...make the seller an offer. That's much easier. No attorney, no misunderstandings, no hard feelings, much easier. Yup...my advice...lease until you're ready to buy, then make offers....if you reach an agreement....buy it. If not this property...another one.
0 votes Thank Flag Link Sun Mar 31, 2013
I would not even consider a rent to own. I will NOT spend 30 minutes on this forum to tell you why. There are too many risks and even our corporate counsel has advised us to walk away from these if our buyers want to walk down this path.

Now, if you wan to give me a shout on Monday, I will be more than happy to share some wisdom with you and even give you a couple of testimonials on this. I have a LOT of experience in this area and you can benefit from that.

Just click on my website below and either shoot me and email or give me a call on Monday.

Just don't do it!!

0 votes Thank Flag Link Sat Mar 30, 2013

Any good real estate lawyer can do the paperwork. There are two documents--a pretty standard lease and a customized option. Each one is different, but generally the option specifies the purchase price. It also specifies the option fee--the amount of money you're paying for the option. That's generally credited toward the purchase price if you buy. It specifies whether any of your lease payments will be credited toward the purchase price. And the option specifies the length (make it for 3 years or more) and under what conditions the option can be extended.

You may be told that the option violates the "due on sale clause" contained in the seller's mortgage. That's probably true. The seller is giving you an equitable interest in the property--that is, the right to buy the property--even though you haven't bought yet and may never buy. The lender--if it found out and if it cared--might foreclose on the property. But not too many find out and even those that do generally would rather have a performing loan than foreclose on it. A real estate lawyer can give you guidance on how to minimize those risks.

Then at some point during the option you'd purchase the property. You'd go out and get a conventional mortgage and buy it.

There are also a lot of other ways to purchase the property. The seller could do a "wrap mortgage." There's also a technique using landtrust--see http://www.landtrust.net for more information. Essentially, the seller would put the property into a trust. You'd be added as the resident beneficiary. The land trust documents would--similar to a lease-option--specify the length, conditions, etc., of the arrangement. The price can't be set up front--it'd have to be sold to you at full fair market value. On the other hand, that would be lowered by payments you'd be making in the lease.

Again, a good real estate lawyer should know how to go about it.

Hope that helps.
0 votes Thank Flag Link Sat Mar 30, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
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