In their infinite wisdom, FHA has made some sweeping changes that dramatically affect the rent to own market.
FHA has decided that they will no longer allow rent credits or option fees to be applied towards down payment funds or pre-paid items at closing.
WHAT DOES THIS MEAN?
If you are in an existing lease option or lease purchase and you negotiated for rent credits to be applied towards your down payment, pre-paid items or closing costs so that you could effectively build towards your down payment and funds required at closing, those funds will NOT be credited or applied and you will be required to bring cash to closing for the full amount required.
HOW DOES THIS AFFECT YOU?
In a nutshell, you better start saving cash now for your down payment, closing costs and pre-paid items unless……
IS THERE A BETTER WAY?
Of course there is. We anticipated this several years ago and as a result, we began shifting all of our contracts to Contracts For Deed (also referred to as Land Contracts or Installment Sales Contracts).
Utilizing a properly drafted Contract For Deed, FHA will credit and principal balance reduction (same thing as a rent credit on a lease option contract) and fully credit your down payment.
Contracts For Deed also enable you to legally deduct the portion of your monthly payment that is interest and property taxes (this is usually all or a majority of your monthly payment).
You are also legally classified as a homeowner and not a tenant or renter. This means you can get actual homeowner’s insurance and a multi-lines discount on your car insurance.
WHAT DO I DO IF I AM CURRENTLY IN A LEASE OPTION OR LEASE PURCHASE?
As discussed, we anticipated this change several years ago and created our Contract Conversion Program to help people just like you convert their existing contracts from a lease option or lease purchase to a Contract For Deed. This enabled many of our clients to qualify for the First Time Home Buyer Tax Credit of $8000 and see immediate increases in their net-net take home pay simply by following our instructions. Imagine increasing your net-net take home pay by $300, $500 or even $1,000 per month simply by executing the right contract and submitting the proper form to your employer.
WHAT COULD YOU DO WITH AN EXTRA $200-$1000 PER MONTH?
Did you know that by executing a properly structured Contract For Deed that is in compliance with the IRS Installment Sales Contract Guidelines you can legally deduct your monthly payment and take that deduction on a monthly basis thereby immediately increasing your take home pay by as much as $1000?
Yep, it’s true and we have been helping clients do it for years. Check out our post on How To Increase Your Take Home Pay With A Contract For Deed
