Posted by JohnBoy on November 27, 2000 at 16:58:34:
That’s up to the lender. They can regard it as what ever they want. You are NOT getting a down payment from the tenant. They are NOT even buying the property. They are only LEASING the property from you. In addition to LEASING the property you are SELLING them an OPTION to buy it at a preset price by a predetermined date. The money they PAY you for that OPTION is in no way a down payment towards buying the property. It is ONLY “Option Consideration” which is NON-REFUNDABLE should they NOT exercise the OPTION for ANY REASON.
A down payment towards buying something serves only one purpose. To BUY it. They are NOT buying, they are only renting with the OPTION to buy.
If you were to say their option consideration will apply towards the down payment, what happens if they can’t get a loan? If they can’t get a loan and are unable to BUY the property, then they would more than likely say they want their “down payment” back since they can’t buy the property. They may decide to take you to court claiming that money was towards a down payment and since they can’t get a loan anywhere they should be entitled to getting the down payment back!
I’d would much rather be in the position to show they NEVER paid anything towards a down payment. They ONLY paid consideration for the RIGHT to buy the property, NOT an obligation to buy it.
Depending on the lender, they may say no! We won’t allow it as part of a down payment and they will only treat the balance owed to exercise the option and close as the purchase price and require a down payment based on that amount. If that were to happen, find another lender that WILL accept the buyers option consideration to be used as part of their down payment.