Buy A Rental With The Tenant Already In It
A sitting tenant is usually an asset on an investment purchase, and at least one program requires a lease in place.
A lease that predates your mortgage can outrank your lender’s lien, so it gets read before you close.
The seller is responsible for ensuring clear title and first lien enforceability.
- On purchase transactions, at least one program uses 75% of the Form 1007 market rent as qualifying income.
- Some programs calculate purchase income as the lower of the lease agreement amount or the market rent from Form 1007 or 1025.
- If the executed lease reflects a higher monthly rent than the appraisal, it may be used when the most recent three consecutive months of receipt are documented with cancelled checks or other electronic records.
- An executed lease agreement is required when the property is currently tenant occupied, and the transferred agreement from the existing tenant and landlord is the document underwriting reads.
- At least one program requires a lease of a minimum 12-month term, verification of the security deposit, and proof of the first month’s rent deposited to your account.
- A unit with no proof of rent collections or receipt of a security deposit is considered unleased under at least one program.
A tenant already in place can help you qualify
Market rent from Form 1007 counts toward income
A higher lease rent can count with proof
The existing lease transfers to you at closing
A lease can stand in for tax returns
Vacancy caps are known before you write an offer
What is the Saxton Tenant Occupied Purchase Loan?
Financing for an investment property that already has a renter and a lease in it.
The Saxton Tenant Occupied Purchase Loan is financing for an investment property that already has a renter living in it under a lease that transfers to you at closing. The tenancy is part of the file, not a side note. An executed lease agreement is required when the property is currently tenant occupied, and the transferred lease from the existing tenant and landlord is the document underwriting actually reads.
You found a property with a paying renter, and you do not want to wait for it to empty out. That works in your favor here. At least one program requires a lease in place on all subject properties. On a purchase, the rent the property already produces supports your qualifying income, and a purchase where an existing lease will transfer to you is a listed scenario for using the lease agreement rather than tax returns.
This is not a way around vacancy. At least one program allows a maximum of one vacant unit on a property of two or more units, and another allows no more than two vacant units on a purchase of a five to eight unit building. A unit with no proof of rent collections or receipt of a security deposit is considered unleased. Under at least one program, a vacant property is not allowed at all on a refinance.
Why choose the Saxton Tenant Occupied Purchase Loan?
This is for the investor buying a property that already has a renter and a lease in it.
The Lease Is Read First
A lease from the seller that predates the mortgage could have a superior claim to the mortgage. The seller is responsible for ensuring clear title and first lien enforceability. When a lease transfers to you, it is reviewed to verify it does not contain any clause impacting the first lien position of the property. Most leases are clean. The point is that someone checks before you close.
Market Rent Does The Work
On purchase transactions, at least one program uses 75% of the Form 1007 market rent as qualifying income. The appraiser sets that market rent amount, not the seller and not the listing sheet. You do not need a year of your own collected rent to get credit for the income this property is already producing.
The Lower Number Wins
Other programs calculate income on a purchase as the lower of the lease agreement amount or the market rent from Form 1007 or 1025. If the sitting tenant is paying under market, the lease amount is the one that counts. Knowing which of the two numbers your file will use changes what you can responsibly offer, so ask early.
Proof Can Beat The Appraisal
There is an exception worth knowing about. If the executed lease agreement reflects a higher monthly rent than the appraisal, it may be used in the calculation provided that the most recent three consecutive months of receipt can be documented with cancelled checks or other electronic records. Start asking the seller for that record as soon as you go under contract.
Vacant Units Have Limits
Vacancy is where these deals get capped. On properties of two or more units, at least one program allows a maximum of one vacant unit. On a purchase of a five to eight unit building, another program allows no more than two vacant units. Count the empty units before you write the offer, not after.
Deposits and Rent Get Verified
Documentation goes past the signed lease. At least one program wants a copy of the executed lease, verification of the security deposit, and proof of the first month’s rent deposited to your account, on a lease of a minimum 12-month term. Another accepts two months of consecutive bank statements or electronic transfers of rental payments for the existing lease.
Hear From Homeowners Like You
Frequently Asked Questions
The questions buyers ask once they realize the renter is staying.
If the property is currently tenant occupied and the lease transfers to you, yes. An executed lease agreement is required, and the transferred lease agreement from the existing tenant and landlord is what underwriting reads. The exception runs the other way. An executed lease agreement is not required for purchase transactions where the lease is not being transferred or there is no lease in place.
It depends on the program. At least one uses 75% of the Form 1007 market rent as qualifying income on a purchase. Others use the lower of the lease agreement amount or the market rent from Form 1007 or 1025. Both are calculations run on the rent, not on you. Ask which one applies to your file before you set your offer.
You may be able to use the higher number. If the executed lease agreement reflects a higher monthly rent than the appraisal, it may be used in the calculation provided that the most recent three consecutive months of receipt can be documented with cancelled checks or other electronic records. Without that three month record, the appraisal amount is what stands.
This is the part nobody mentions at the showing. If the existing lease from the seller is transferring to you, a lease that predates the mortgage could have a superior claim to the mortgage. The seller is responsible for ensuring clear title and first lien enforceability. Any transferring lease is checked to verify it does not contain a clause impacting the first lien position of the property.
There is a ceiling, and past it the deal does not fit. On properties of two or more units, at least one program allows a maximum of one vacant unit. On a purchase of a five to eight unit building, another program allows no more than two vacant units. Under at least one program, a fully vacant property is not allowed on a refinance transaction.
No. Properties with no proof of rent collections or receipt of security deposit are considered as unleased. A handshake tenancy gets that unit counted as vacant, which can push a multi unit building past its vacancy cap. If the seller cannot produce collection records and the deposit, treat that unit as empty when you run your numbers.
Not always. A purchase transaction where there is an existing lease on the property that will transfer to you is a listed scenario for using a lease agreement rather than tax returns. Some programs still want two months of consecutive bank statements or electronic transfers of rental payments for the existing lease. The lease replaces the returns, not the proof that the rent is real.
Find out what you qualify for
A sitting tenant is usually an asset on an investment purchase, not an obstacle. What matters is the lease. Whether it transfers, what it says about lien position, what the rent record proves, and how many units sit empty. Bring us the lease and the rent records and we will tell you where you stand. Get a fast, no-obligation pre-qualification today.
Get Pre-Qualified*Loan amounts, rates, terms, and down payment requirements are subject to credit approval, income and asset verification, and program eligibility. Rural housing financing is governed by USDA area loan limits and income limits rather than by conforming loan limits. Down payment and cash-out limits vary by occupancy, credit score, and documentation type. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.