Got Tenants? Let Uncle Sam Pay You $8000 for Them!

If you rented your house recently instead of selling it, you might be one of many homeowners thinking this …

“Yeah, yeah … I heard about the First-Time Home Buyer Tax Credit (FTHBTC) deadline on April 30, 2010.  But I already have my house rented out.  What does any of this have to do with me?”

What if you could wave a magic wand and turn your good-paying tenant into a buyer – before the FTHBTC deadline?  Imagine this: A buyer who already loves the house, who agrees to your asking purchase price, and you don’t have to pay a Realtor’s commission to get it sold.  And, what if your buyer, with some help from good ol’ Uncle Sam, paid you $8000 in just a few weeks? 

Then, what does any of that have to you do with you?  A LOT!  About $8000 worth!

The catch is your tenant, your would-be buyer, cannot get a mortgage with a bank right now. 

There is another way:  You sell the house to your tenants (Mr. and Mrs. Goodpayer) now and you finance them until they are able to get a mortgage.  Once Mr. and Mrs. Goodpayer are able to get a mortgage from a bank, perhaps in 18 – 24 months, then they can refinance to pay you off in full.  In the meanwhile, the Goodpayers pay you every month as their lender, rather than as their landlord.

Sure, credit is a big reason that many people cannot qualify.  But there are many other reasons that can get in the way of someone qualifying for a mortgage that can be fixed relatively quickly (like within 18 – 24 months).  Here are a few examples:

• Your tenants haven’t saved quite enough of a down payment yet
• Your tenants moved in from out of state and don’t yet have 12 months of job history
• Your tenants have 14 more months left to pay off a car loan which will significantly lower their debt-to-income ratio

The IRS rules allow a seller to finance the sale of a home to their buyer and have the buyer still qualify for the $8000 refund.

What that means is this … You can agree to sell your house with seller-financing to your good paying tenants now, if they agree to pay a reasonable down payment of $8000 to you.  That down payment will be due in full just once the $8000 FTHBTC refund is received from the IRS, typically within 3 – 6 months of filing for the FTHBTC.

As part of the sale, you and your buyer will have some mutually agreed upon timeline for them to refinance with a bank to pay you off in full.

You won’t want to embark upon this on your own.  You’ll definitely want a few people on your team to assist you with the details:

• A closing attorney to assist with the purchase and sale agreement for the seller-financing and to handle the closing
• An accountant to confirm your tenants are eligible for the FTHBTC and to file the documents with the IRS for the refund
• A mortgage broker to help you and your tenants understand exactly what is keeping them from getting approved for a mortgage with a bank right now and a reasonable estimate of how long before they could refinance

What if you learn from your mortgage broker that your tenants can get a mortgage from a bank right now?  On occasion, a good-paying tenant is surprised to learn that they can qualify for a mortgage and didn’t even know it.  Wouldn’t that be nice?

So what must happen now?  The IRS requires that a valid purchase agreement be executed by April 30, 2010 for the buyer to be eligible for the FTHBTC.  Then, the closing must be completed by June 30, 2010.

Talk to Mr. and Mrs. Goodpayer today. Find out if they are interested in owning the home that they love right now, if you agreed to help them by offering seller-financing.  Then, with your attorney’s assistance, finalize the details and execute the purchase agreement by April 30, 2010.

Your attorney should guide you on the specifics for structuring the terms for seller-financing, what both parties are obligated to do, what happens in case something wrong, and all the other closing details.  Also, be sure to have your attorney include a provision that allows you to confirm with an accountant that your buyers are fully eligible for the FTHBTC and a provision to confirm with a mortgage broker that they will likely be able to refinance in a timeframe that works for you.

You (and your tenants, for that matter) can complete your due diligence after the purchase agreement has been executed, just as long as the closing happens no later than June 30, 2010.

There you have it!  If you have good-paying tenants who would love to own the home that you had hoped to sell, let Uncle Sam and the First-Time Home Buyer Tax Credit make that possible with a win-win for you and your tenants.

Comments

[sell house fast]

This is a good news, I am glad I was able to read your informative article. This is definitely a great help for me, I am already entertaining the idea of selling my property instead of having it rented.