Can You Refinance a Lease Option?

July 6, 2018 by Marty Orefice | Financing, Real Estate, Rent to Own

When you don't like the terms of your lease-option, can you refinance your rent to own?
Refinancing is the process of replacing an old loan with a new loan. Lease-options are not loans. Rather, you’re leasing a property, and you have the option of purchasing it.

You cannot refinance a lease-option because you’re do not have financing for it yet, to begin with. In fact, unless you have the money to purchase a home cash, you will need to secure original financing later on.

Financing is a critical aspect of renting to own. Failure to secure financing is the primary reason why some rent to own deals aren’t successful. The most traditional types of financing are conventional mortgages, FHA loans and owner financing.

Can You Refinance a Property You Lease-Optioned?

After you’ve secured financing to purchase a rent to own home, you go ahead and purchase the rent to own home. Once you’ve purchased a home, your rent to own deal has ended successfully. You’re no longer renting to own, now, you own!

At this point, if you’re unhappy with the mortgage that you secured, you can always choose to refinance it for a different option. For example, you might transition from an FHA loan to a commercial loan. You may switch from one conventional loan to a conventional loan that has better terms associated with it.

You can refinance a home that you lease-optioned, but the process takes place long after your lease-option has concluded.

Rent to Own vs Owner Financing?

You might confuse rent to own with owner financing. In the case of owner financing, you do pay the seller every month – like you would in rent to own, but you’re not renting to own. Instead, you’re paying off a loan from the seller. Whereas, in rent to own, you’re paying rent until you can qualify for a mortgage, FHA loan or loan from the seller or until you’re sure you want to purchase this property.

If you did mix up the two, then you can refinance your loan! You would need to qualify for a loan from another source in the amount that you owe the seller if you were to buy today. Then, you pay the seller in full with the money the loan and you start paying the bank or another source from then on.

This would be a great idea considering that sellers usually charge a much higher interest rate to finance a property themselves versus what the bank would charge you. That’s because a seller is more likely to take on a “risky” loan than a bank would. For example, a seller might be willing to take a smaller down payment, accept a lower credit score or have leniency regarding job history.
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Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created to provide the #1 resource where people can find information about all things rent to own.

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