Exercise purchase with refinance loan after months

Perhaps the most important advantage that the purchase option offers is that the option can be exercised using a refinance loan. Most people don't realize this, and many who do fail to grasp its implications: refinance loans don't require down payments!

As long as the property has sufficient equity, a refinance loan avoids the need for down payment. As noted above, however, to use this tactic, the purchase option must be at least 12 months old. Lenders who accept this approach will also place the burden of proof on the investor. It is up to the investor to prove that the purchase option is at least one year old. Investors interested in this approach should follow these tips:

  1. Notarize the option contract. The notary public will certify the date; the notary will also record in their files the date that he or she notarized your contract.
  2. Record the notarized contract. The option is a legal instrument that can be recorded with the county recorder of deeds. In addition to documenting your contract date, recording the contract notifies other potential sellers that you already have the property under contract, at least through the duration of the option term.
  3. Keep option payment check. Obviously, you shouldn't pay with cash. Most people use a personal check; once this check cycles through your account and is returned to you by the bank, keep it as further proof that you made an option payment. You may also want to consider using a money order or cashier's check; in such cases, make sure that you keep your check receipt.

Example: Using a Refinance Loan to Buy with No Money Down

Tiffany has found an apartment building for sale by owner. The seller wants $400,000; Tiffany discovers that the property is actually worth about $500,000. Unfortunately, remember that the bank will base its lending on the lower purchase price and not on the higher appraisal value. Tiffany and the property can qualify for an 80% LTV loan from the bank, but she does not have the 20% down payment.

But Tiffany is resourceful. She negotiates an option contract with the seller for the asking price of $400,000. The option contract has a term of 16 months, and Tiffany pays a non-refundable option fee of $5,000 to secure the option. In the meantime, she agrees to volunteer a few hours a week to help the seller make improvements to the apartment building.

Tiffany follows the above steps to formally establish her contract date. After one year, she applies for a refinance loan to exercise her purchase contract option. Tiffay is approved for an 80% LTV refinance loan. Her property is appraised at a value of $500,000, 80% of that is $400,000. That is exactly the amount she needs to pay off the seller and acquire the property.

Real Estate Planning And Prosperity

Real Estate Planning And Prosperity

Entrepreneurs go against the flow. You've a business idea. Lots of individuals have business themes. The difference is that you, the entrepreneur, take action. Realty investors are the same.

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