Yesterday I began this Rent Or Lease With Option To Purchase series, with a brief introduction. Today I will provide the Fannie Mae Guidelines on the allowable amount a Landlord can contribution towards the downpayment.
Fannie Mae Guideline 303.13 Rent Credit For Option To Purchase: States that a rent credit for an option to purchase is an acceptable source of funds toward the minimal required Borrower downpayment. This amount can be for the full amount of the minimum required Borrower downpayment, the Borrower does not have to use any of their own funds in order to be able to use rental payments towards their minimum required Borrower downpayment. So far no problem, and appears to be in line with what would be expected. However, further reading of the guideline on how to calculate the amount of the Rent that is allowed by Fannie Mae toward the minimum required Borrower downpayment, paints a different picture.
The guideline goes on to say that the:
- Credit for the downpayment is determined by calculating the difference between the market rent and the actual rent paid for the last 12 months.
- The market rent is determined by the appraiser in the appraisal for the subject property.
- The lender must obtain the following documentation:
- A copy of the rental/purchase agreement showing a minimum original term of at least 12 months, clearly stating the monthly rental amount and specifying the term of the lease.
- Copies of the borrower's canceled checks or money order receipts for the last 12 months to confirm the rental payments.
- The Market rent that has been determined by the subject property appraisal.
As you can see the Landlord can not just contribute whatever he likes toward the downpayment, and can only contribute what the Renter has paid that is over and above the fair market rent. In other words the Landlord is only giving the Renter back the amount of money that he/she paid over what they were suppose to.
That does not seem to me like the Renter is getting any great deal here, and would be better off putting the excess amount in the bank where it will draw interest, and he/she has control over it instead of the Landlord. In actuality the Landlord has not contributed anything, but has locked the Renter into the purchase of a house that they may later not want to buy.
The next blog will cover the FHA guidelines Rent Or Lease With Option To Purchase.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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