Rent Or Lease With Option To Purchase .......... Lending Restrictions FHA

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

This is the third blog in my series Rent Or Lease With Option To Purchase. The first blog in this series was a brief introduction.  In the second blog I explained the Fannie Mae Guidelines on Rent Or Lease With Option To Purchase.  Today I will provide the FHA Guidelines on the allowable amount a Landlord can contribution towards the downpayment.

The FHA Guideline is similar but more direct in my opinion, than the Fannie Mae Guidelines on Rent Or Lease With Option To Purchase.  FHA Guideline 302.5 Rent Credit, states that the cumulative amount of rental payments that exceed the appraiser's estimate of fair market rent may be considered as an accumulation of the Borrower's cash investment. 

Again this sounds pretty straight forward, but just like Fannie Mae, FHA has restrictions, and requires certain documentation.  The Borrower must provide:

  • A Rent With Option to Purchase Agreement, and
  • The Appraiser's estimate of the fair market rent in the area for a comparable unit.

During Underwriting the Underwriter MUST treat the rent as an inducement to purchase with an appropriate reduction to the mortgage, if the Rent Or Lease With Option To Purchase Agreement, reveals that the borrower:

  • Has been living in the property rent-free, or
  • The agreed rental payment is considerably below the fair market value.

As you can see both Fannie Mae and FHA make it very hard for a Renter to be able to use any part of the rent towards the downpayment for the property that they are renting. 

Anyone considering doing a Rent Or Lease With Option To Purchase needs to proceed with great caution, and talk to a Loan Officer prior to entering into one.  Realtors need to also proceed with caution or risk having to face a very angry Buyer when it comes time to purchase, and the money that they expected to have towards downpayment is not their.



 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

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or


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Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO


This is great!

Thanks for the post!

Have a great day!


Apr 12, 2012 01:01 AM #1
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, I have not seen any lease with option to buy lease agreement where the rent was either below fair market value, or the rent was forgiven. Usually in a lease/buy contract, the rental fee is above fair market value with a portion of that overage being added to the escrow that goes towards the purchase. That total can accumulate to a value that may just pay a portion of the closing costs, and an underwriter would really be stretching to find issue with that.

Apr 12, 2012 12:11 PM #2
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George Souto

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