Lease Option on a property with a mortgage against it?

You should be able to without any problems.
The one problem you could have, is if you financed the property as an owner occupied. You would have to wait 6-12 months to lease it. I'm not exactly sure of the time frame, but I think it is one or the other.
The bank may or may not check to see if you are living in the house, if you did do the owner occupied loan.
If you make sure the payments are made, you really shouldn't have a problem.

Jim

All my houses I sell on L/O have mortgages on them, that is not an issue at all, just make sure you get enough rent to cover PITI, plus any other expenses you are responsible for.

Jake kathy is right here. It doesn't matter if there's a mortgage or not. It could be your loan or somebody else's loan. This is called a sandwich lease option. just make sure the rent covers all your expenses and leave a little cushion there if its piti. Because the taxes can change and that will change your mortgage payment.you can do it. I have five or six of these going right now like Cathy said, I do it all mine they better care of the house and you will make a lot more money up front I hope this helps to do

Thanks all. Definitely confirms my thinking.

One more...staying in this LO example, for the easiest refi, which comes first: the tenant buyer or the mortgage?

I say tenant buyer, yes?

Thx!

Jake

Hi guys I never posted before but I am looking for a lease option in Queens NY. If any one can help let me know. thanks in advance.

You would have to do the mortgage first. Once you have a L/O in place you cannot put any additional liens against that property!

Karen

"Can I sell a property I paid cash for, then took out a mortgage against, using a lease option contract?"

It would be an issue if you stated you were going to be the owner/occupant of the property when you applied for the loan.

Karen, That's right. When you put it those words I "see" it differently, you're right.

It is not owner occupied. It's an investment property.

Thanks!

Karen, how do you handle the option? Do you record a memorandum of option or not? Do you handle it different if you are the optionor or the optionee?

Before I add additional comments, let me state that I have worked with Lease Options in a variety of different ways, both as an acquisition technique and as an offering technique. I have experienced relatively few issues with the structure of a lease option, and strongly encourage them as a way of maximizing price on a property and developing several potential profit centers.
It has not been mentioned here that a lease option is technically a violation of the acceleration clause found in almost every conventional mortgage. But then, so is any lease longer than two years. Does this mean that you should be worried or not do the lease option? In my opinion, no, and I have never known anyone or known anyone who knows anyone that has experienced problems with an acceleration being triggered simply because you offered the property as a lease option. Now if you become delinquent on your payments, that's a different story. But please do not consider this information as a reason not to do lease options.
In regard to recording a memorandum of option, first, I prefer to record a Notice of Interest (more nondescript, why disclose more than is necessary). I do record a notice of interest if I am acquiring the property from a seller via lease option. It would be the responsibility of my tenant buyer to file a notice or memorandum on their option on the property, and I do not bring this into the conversation, but if they wish to do so, I do not have any objection.
A further note on recordation--when you go to the county recorders office to record a notice, lien, etc., always take an extra copy with you and ask them to make a conformed copy. For a few extra dollars, you will walk out of the office with a stamped copy of the recorded document rather than awaiting one in the mail. I imagine that Karen may have some additional comments, just sharing from my personal experience.

One more question...

The following statement was made to me: "Make sure your financing allows you to do a “contract for deed” or owner financing"

If I'm selling a house via lease option, there is no deed to be moved at all until the option is exercised, right? So from any lenders perspective, if there is a mortgage and I set up a lease option with a buyer, I am still going down the "owner financing" route without violating this idea. For example, if the buyer decided NOT to exercise the buy option, there's no harm, no foul. If the buy DOES option to buy, then at that point escrow opens and the lender simple sees it as me selling the property.

Do I see this correctly?

And if the lease option term is less than two years, then the acceleration clause mentioned by Dallin is also moot, yes?

Thanks all for clarification!!!

Jake

why would you do a L/O if the property is paid for?; get a tenant in the property, then refinance it up to 80% of FMV, and tenant will pay you and you pay the mortgage...

you can tell tenant that they can L/O property in the future if you do want to sell it that way... then you put in L/O contract that there is a mortgage on property... and you can get a deposit from buyer which puts more $ in your pocket...

Acceleration clauses do include any methods of seller finance, so technically any lease option would be a violation of a contractual term, no matter the length of it. If you choose to let that concern you, then do not violate that contractual term. I have not concerned myself with that, and have never had any issues with the mortgage lender, nor do I know anyone who has done lease options who has ever had acceleration issues due to the implementation of a lease option on the property.
It is not my place to tell anyone what they should do, that would be your decision. My understanding of acceleration clauses is that they are included in mortgages as a protection against default and loss of funds for a lender, not because they want to cut their own throats by accelerating mortgages on which they are being paid faithfully each month. The great caution is, don't become delinquent on your payments, whether you have a lease option or not.
As a response to Valerie's comments, I definitely agree that there are circumstances where a lease option really does not accomplish your long-term objectives with a property. Make sure you are clear on your reasons for offering a property for sale using a lease option, and whether that method of doing so fulfills your long-term and short-term investing goals.

Well, I guess it's because the bulk of the offers I'm getting are owner finance offers. I own the property and want my money out of it. Whether I sell it outright or obtain a mortgage, doesn't matter to me. But since the offers coming in are owner finance offers, I figure why not try to capitalize on that, right?

I'll wrap up a successful deal regardless, so either way it pans out is OK with me. I just want to make sure I do the L/O avenue to the best possible advantage.

I thought I would add a few of the parameters I use in setting up a lease option with a tenant buyer, in order to make sure that these transactions are profitable.

1) Purchase Price--Current FMV Plus 6% to 12% (or more in areas of high appreciation.)
2) Option Consideration--3% to 6% of Purchase Price (or more)
3) Monthly Payment--High Market Rent similar properties
4) Length/Term of Agreement--12 to 18 months
5) Purchase Credit--A) 50% or 100% of Option Consideration, plus about 10% of monthly rental payment.

I also go in 50/50 on a Homeowners Warranty for 1 year on the property to cover any major repairs that come up during that time period. And I connect them with a mortgage broker, who I indicate is the "credit police" to keep them on track in rebuilding their credit and helping them to qualify for a loan at the end of the option period.