How do you refinance out of a real estate contract or a lease to own contract?
First, let’s distinguish between a real estate contract or REC and a lease to own contract. On a REC, the borrower actually goes on the title to the property along with the seller; that title is recorded with the county. The borrower and the seller are both on the title. The seller in a REC is really just like the mortgage company on a regular mortgage and the loan will amortize also like a mortgage. This is very important as when the borrower wants to refinance out of an REC, it’s a true refinance and the loan to value will be determined by the current loan balance and the appraised value.
In a lease to own contract, the agreement is not recorded at the county and the borrower is not on title. When a person wants to finance out of a lease to own, it is actually a purchase transaction, not a refi. The borrower only gets to use a portion of past payments toward their down payment. The only advantage of a lease to own agreement is that the price of the property was fixed at the contracted price. Lease to own contracts are seldom in favor of the buyer. A REC is always better for the consumer vs a lease to own.
At Indigo Mortgage, we’re experienced in both of these alternate ways to purchase property, and in coming out of those agreements into a traditional mortgage. Call us to get started.