You can try to option the house. You agree on the house costing X amount of dollars (it should be more than the mortgage) if you buy within Y amount of time and you pay them for that right. They retain the house during that time but they also have the amount of money you paid them for the option to buy at a set price.

Option contracts are fairly standard in commercial real estate and so an attorney will be familiar with one. However, there is substantial risk to you. If you can't secure a mortgage in that amount of time you lose the money you paid. Also if they stop paying the mortgage life will get very interesting very quick.

In the end, this might be a sign that you shouldn't buy the house.

Thank you for your input. I will look further into option cantracts as that sounds like a viable option. I am not concerned about having the cash to make this transaction when it is due. I would also insist upon making the mortgage payments myself. If my being ready is my biggest risk I am certainly willing to try this! Thanks again

There must be something else going on here. The owners bank would have nothing to do with your lease purchase because in theory the payments go to the current owner and the owner pays the bank for his mortgage.

However, I did notice that in your current structure of the purchase you were allocating 50% of the rental payment toward the down payment. If you plan to finance the purchase after your properties sell, it is very unlikely your lender would allow 50% of the rental payment toward down payment. The most allowed is the overage over market rental rate toward down payment. If the market rental rate is $2k per month (for example) and you pay $3k, then the extra $1000/month can be applied toward the down payment.

Solution: Try a Contract for Deed (a/k/a Land Contract). It is very similar to a Lease Option as proposed above, but has more protections for the buyer. You need an attorney to put the contract together and one that is familiar with writing these. A contract for deed is just like it sounds. The deed stays in the name of the seller until you pay it off entirely. Generally there is a maturity date (3 to 5 years is common). The payments you make to the seller are interest and principal. You are responsible for taxes. Insurance can get a little tricky if the current lender escrows for taxes and insurance. In these contracts for deeds everything is spelled out. You are the owner, just not the owner of record until you have paid in full. Typically payment in full is a refinance into your own traditional mortgage before the due date.

Can you qualify for a mortgage on your own. Yes regular mortgage companies might not allow it if it is rural, but try local banks in the area of the property. We are looking to buy a new property with lots of acreage without selling our current home and thus will need temporary financing until we sell and due to the acreage and location a normal mortgage won't work. However, there are 3 local banks in our area that all will plus capital farm credit will as well. Regular mortgages works best when in a regular neighborhood.

Thank you for your response Denita. I too was curious why the present mortgage holder would have anything to say about a lease to purchase agreement. We will be meeting with the property owners later this week and hope to get some clarity.

I had forgotten about Land contracts. This sounds like the way to go and will be looking for a real estate attorney familiar with them. Thank you again.

Lyfia thank you for your response. We cannot qualify for a mortgage on our own. We did check out local banks in the area of the property we want, as was suggested by our real estate agent. We have a Home Equity line which amounts to as much as our DTI will allow. We have some of that cash tied up in a house we are flipping and hope to use most of the rest for the down payment should we be able to work something out...like a land lease suggested by Denita. The good news is we will not have any debt once we sell our residence and our flip property. At that point I do plan on establishing a new line of credit in order to flip one or two properties per year as I will be retiring next year and looking for part time income. I thank you for your input and good luck with your acreage property. We too are buying some acreage with the property we hope to buy. We are just eager to get away from the traffic and noise and this property is perfect!

Many mortgages limits themselves to allowing only owner occupied properties and you can default on the mortgage if you are renting the property out. This may be what the issue is with the current owners mortgage.

I never recommend a lease / purchase deal to either a seller or a buyer. There are just way too many pitfalls for each party. Way too many unique scenarios that could play out between the "buyers" and the sellers before the deal reaches maturity that usually are not spelled out in a contract.. And they rarely ever mature.

Keep it simple... write up a standard lease for whatever term you need. And write up a standard Offer To Purchase for the property, with a closing date sometime near the end date of the lease. The parties can agree to when the inspections are performed, and the agreement for the sales price.

But the "buyer" needs to realize that they are renters, and not owners until if and only if, they close after the lease term.

Most RE attorneys here will not even draft lease purchase contracts. That's a big red flag right there.

Interesting- I've not attempted it in Texas, but lease/purchase agreements can't be prepared by a Realtor, asthat's a violation of the Real Estate License Act. Must be done by an attorney, and even at that, it's apparently complicated under Texas Property Code. Is it like this in other states?

Yes, can't be prepared by agents here either (Florida). That's why I said get an attorney that does them (not all do). But I was referring to a Contract for Deed in my post which is a purchase - not a lease.

It's likely that the current mortgage contains a "due on sale" paragraph (mortgage must be paid if property is sold) and the mortgage holder considers a lease with option to purchase a "sale" of sorts.

^^That would be a lender that has no clue if they consider a lease option to be a sale.

I appreciate all the feedback and will use it in establishing a path, if possible, to getting this property. I am hoping the owners are willing to do either the land contract or a lease and separate contract to buy. Thank you all. Will keep you posted.

I am curious if the closing date on a contract can be 10 months from the contract date? I trust this is unusual but is it something that people do?

A closing date can be ten months away, but I don't think the earnest money could be released before then, so the sellers will not get the money needed.

In my experience esoteric deals end up costing significantly more money. There are very few ways, other than straight up buying a house, to keep the deal reasonable for both parties.

A lease to buy, a land contract, and a delayed closing are going to seriously affect the seller's ability to finance alternate housing. Unless you are paying a serious premium for that the buyers will be foolish to do it and an attorney would be foolish not to advise them against it.

If you really want this deal you and the buyer should meet with an attorney and see if you can hash out a deal that will work for both parties. However, I will say that I have never ended up regretting passing up a deal, no matter how badly I wanted it at the time. I honestly believe the best thing that you can do is pass up this deal.

I've put together Contracts for Deed (the people, the attorney does the contract) and they work best when the buyer has a "thing" that needs to be done in order to close (with outside financing) on the purchase. It can be anything, but the typical item is to sell a house. In the OP's case they have two properties to sell. The other important component is for the buyer to have enough cash up as a non-refundable deposit/down payment so that they follow through with what they need to do so they can finance with regular financing before the maturity date. All the terms are negotiable. The down payment goes to the seller immediately (at closing of the Contract for Deed). Think of this as an installment sale with a good sized down payment.

The problem with a land contract (contract for deed) is, if a bank will not approve a lease to own, they are not going to approve a land contract. Either of these things will trigger the due-on-sale clause of the mortgage note. In fact, a land contract will trigger the due-on-sale clause a lot faster and easier than a lease to own.

The seller can make the case that a lease to own isn't a transfer of ownership, it is just a rental with an option to purchase. That case can't be made for a land contract.

As a buyer you take additional risk with these deals. If the mortgage holder decides to exercise their rights, your rights almost disappear.

Well it sounds like we have our hands full trying to pull this off. The last thing we want is to be in a position that could lose us tens of thousands of dollars. We meet with the home owners on Friday and will hopefully have more info. I do appreciate everyone's input and am anxious for Friday. Thank you all.