If you’re in the process of selling one of your units and perhaps catering to the lower end of the scale, it’s likely your buyers will be first-timers. Most first timers select FHA financing due to the lower down payment requirement of only 3.5 percent.

That said, it’s no secret that underwriting guidelineslease purchase agreement for all mortgage types have become tighter over the past two years and that should be considered a good thing, not a bad thing. The popularity of the FHA program is primarily due to the low down payment requirement and it takes some time to save up enough funds for a down payment plus paying for the associated closing costs. Have you thought of rent-to-buy scenario that will provide you with a monthly cash flow while your tenants are saving up their funds to buy your unit?

A rent-to-buy program or a lease-purchase, is an agreement between the owner and the buyer that the property will be sold at a predetermined price and date in the future. Each month, a portion of the monthly rent check is set aside by the owner to be used later as down payment funds. This helps both you and the seller but only if the lease-purchase agreement is properly executed.

Say for example, the monthly rent is $1,500 and the tenants want to save $400 each month to be held by you for 12 months or whatever you agree to. After 12 months, the tenants have $4,800 saved to be used as a down payment. On a $150,000 sales price, the down payment for an FHA loan is $5,250 and the $4,800 goes a long way toward that amount.

It’s important to make sure the $400 monthly amount is above and beyond the current market rent for similar properties in the area. If not, the extra funds will be considered a cash gift to the buyers and an FHA lender won’t be able to use the funds. If the market rent is $1,100 then the $1,500 rental amount works out. If the market rent is in fact $1,500, no funds from that $1,500 may be held back to be used later. The FHA lease-purchase is an ideal way to help first timers buy a home while maintaining cash flow on your rental property. Just make sure you’re fully aware of the process and if you have any questions, contact an FHA lender with your proposal for details.