Can a rent to buy tenants who is in the lease-option get finance ?

first question, yes all you’re doing is saving a deposit which you can then show a bank to get traditional finance. i would assume only 2nd tier banks would allow this as general savings i don’t think the big4 would allow this as a deposit.

2nd question you would register a caveat over the property which wouldn’t allow the vendor to sell / refinance the property.

Cheers,

Hi Cris,

it depends you may have had to pay a 25k deposit to get into the house / rent to buy deal. what % of that comes of the purchase price i wouldn’t know you would have to read the agreement.

the caveat just means you have a interest in the property. i’m not a lawyer. i’d assume once you have the deposit and can get finance you would just proceed to settle. and the lawyer would take care of the caveat issue.

do you mind me asking are you looking to buy on a rent to buy?

• This reply was modified 8 years, 6 months ago by  huilo.

When the tenant wants to buy the property (ie become legal owner) they would apply to a lender, just like normal. But the lender will need to know the details such as they have been paying extra rent which goes towards a deposit and that they will be buying under market value. These sorts of things are difficult to finance unless the LVR is under 80%. Tenants will still have to prove income and demonstrate serviceability etc.

A person taking an option over a property has a caveatable interest so they can lodge a caveat. This will show everyone that they have an equitable interest in the property. The owner could try to refinance or increase loans etc but any prospective lender will see the caveat and be unlikely to lend while it is in place. You would also contract with the owner that they cannot increase the loan.

Incidently the owner would be in breach of their mortgage agreement if they allowed a caveat to be lodged.

last time I tried finance for one of these was over 10 years ago and the mortgage insurer would not allow the loan on valuation. They also didn’t recognise the extra rent payments as a credit for the tenant.

But these days many lenders lend based on the valuation where the contract of sale is has been exchanged more than a year ago for off the plan type sales.

Hi Cris,
I am also looking at providing potential owners with a Lease Option or Vendor Finance to purchase(build) their first home.
Currently I have 1 family I can help but once I have successfully established this agreement, I hope to replicate with others.

I plan to purchase/build a house and land that suits the families wants.
First home and building means the stamps will be lower in Vic.
Buyer will pay me/refund the acquisition costs for the property(my deposit, stamps, legals, Service Fee??)
I will then either add a margin to the my mortgage on this property. (if I secure 5% interest rates, they will pay me 7% for example)
Buyer will be responsible for all outgoings/repairs.
As for the exit, I am unsure.
Either I will continue this until the mortgage has ended in 30 years after which the buyer will take ownership(and pay stamps….again)
Or, we create an option for them to gain finance after 10 years to buy at an agreed price?

As you can see I only have a very loose concept and welcome any further discussion and guidance.

Have you had much success in understanding how to structure yourself as the seller to minimise tax/legal implications?
Are you using a “template” contract for this type of agreement(noting all agreements would be negotiated separately)?

I am interested in hearing from you as I have only begun this journey myself and it has only developed from seeing an associate need this service to get in to home ownership(and of course myself looking for creative investing opportunities).

Hi Deanne,
I am also interested in any advice you maybe able to provide in this process?

Thanks and look forward to further discussion.
Regards

Hi Robert,

I have never purchased or done a lease option on a house that suits a particular purchaser. If I am purchasing a house to onsell with vendor finance then I have a simple checklist – 3/4 bedrooms, 1/2 bath, nice house close to schools, public transport etc. That way I will have a large list of prospective buyers to choose from, not just one particular purchaser. This is partly because if they change their mind, or don’t qualify, I don’t want to get stuck with a house that they like and I can’t onsell. I always find the house BEFORE I find the buyer.

As a first step I would suggest you have a chat to a lawyer who understands vendor finance so they can advise you on what type of deals work best in your State. I say this from personal experience because whilst I live in Tasmania, I do most of my lease option deals in NSW where there is no stamp duty on the Option. Here in Tasmania it is the same as Victoria and there is a double dip – stamp duty upfront on the option, and then stamp duty when the purchaser settles on the property. It is easy to get caught as the rules can be very different.
Paul Dobson is correct that Instalment Contracts might work better than a Lease Option (rent to buy) for you in VIC, due to the stamp duty issue, but there is always the chance that you will come across a deal where the cost is worth it, so it helps to understand how they both work.

Lewis O’Brien (Phone: 03 9888 6388) is a lawyer who understands vendor finance and would be a good place to start. The Vendor Finance Association also holds meetings quarterly in VIC and that would be a good place to go and talk to people who are doing what you want to do.

Just doing those few things should help clarify for you what strategy you want to do.

Secondly, NEVER try and do your documents yourself. I always get a lawyer to do my documents – I get the buyer to pay for them (direct to my lawyer). It is just not worth the risk for any of the parties involved.

Thirdly, get a good accountant who understands vendor finance – you will probably need to do some research. I live in Tasmania and my accountant is in WA, but he understands everything I do and it works fine.

In regards to how you set up your deals, you will be directed by what is allowed in your State. For example, you cannot pass on the costs of maintenance and repairs with a Lease Option in NSW, so just make sure you understand what you can and cannot do.

Let me know if you have any questions. If I don’t know the answer, I will be able to point you in the right direction.

Regards,
Deanne

It means if you are the owner and mortgage the property you promise, as mortgagor under the mortgage agreement, must prevent people from lodging caveats. If someone lodges you must do all you can to have the caveat removed.