You have been leasing a building for four years. The lease says part of every month's rent is credited toward the price if you exercise your option to purchase. The option window is about to open. Before you spend a dollar on an appraisal, you want one question answered: do those accumulated credits count as your down payment, or do you have to write a check for the whole injection?
Under The Fiirm's SBC program — small balance commercial — rent credits may count as evidence of your injection. But that is conditional on two things you either have or you don't: a lease agreement containing specific language about what amount of rent is being credited toward the purchase price, and cancelled checks proving you actually paid it. If the lease never spelled the credit out, the credit does not exist for underwriting purposes, regardless of what you and your landlord understood between yourselves.
That is the short answer. The rest of this page covers how the transaction gets classified, how the injection is sized, what the option agreement has to show, and how the LTV basis is determined — plus the specific place where rent credits stop helping you.
Your lease option is a purchase, not a refinance
This matters more than it sounds like it does. Borrowers who have occupied a building for years tend to think of the exercise as "buying out my own equity," which sounds like a refinance. It is not treated that way.
Two consequences follow immediately.
First, the injection is sized off the purchase price — the strike price in your option — not off the gap between the strike price and today's market value. If your option lets you buy at $900,000 and the building appraises at $1.15 million, that $250,000 spread is not your down payment. It is a favorable price. Those are different things, and the guideline is explicit that injection requirements attach to the purchase price.
Second, you are held to purchase-transaction terms across the file: purchase LTV maxima, purchase reserve requirements, purchase documentation. A fully executed Purchase and Sale Agreement, with all amendments and schedules, is a document requirement — and if the agreement has expired, an extension has to be provided.
Do rent credits count toward the injection?
Yes, with documentation. Here is the operative language.
Read that as a three-part test, because that is how it is applied:
| Requirement | What satisfies it | What fails |
|---|---|---|
| Lease agreement with specific credit language | A copy of the executed lease stating the amount of rent credited toward the purchase price | A verbal understanding; a lease that says "seller may apply rent toward purchase" with no amount; a side letter that was never signed |
| Cancelled checks | Cancelled checks evidencing the rent actually paid | A ledger the landlord prepared; a summary letter; "we always paid cash" |
| Base rent checked against market | Base rent that stands up when compared to market rent for comparable space | A rent inflated above market so the "credit" portion could be inflated with it |
The third line is where most of the trouble is, so it gets its own section below.
Notice what the guideline does not say. It does not say rent credits count dollar-for-dollar. It does not set a maximum percentage of the injection that rent credits may represent. It does not state a seasoning period for the lease. The provision says rent credits may be considered as evidence of injection with those two documents. It is a documentation standard, not a formula. Anyone quoting you a precise "rent credits count up to X%" figure is not reading our guideline.
The base rent test is the part that kills deals
If you and your landlord structured the lease so that you paid $9,000 a month on space that rents for $6,000, with $3,000 a month "credited" to the purchase, you did not build $3,000 a month of equity. You overpaid rent by $3,000 a month and called it something else. The guideline requires that the base rent be checked against the market, and the appraisal we order will contain market rent data on the subject.
The inverse is worth naming too. A tenant who paid genuinely at-market rent for years with a modest credit written into the lease — say $500 a month against a $4,000 market rent — often does not think of it as a down payment at all. That file is in far better shape than the one with the impressive-looking credit balance.
Rent credits are injection. They are not reserves.
This distinction is not intuitive and it is expensive to get wrong.
Rent credits sit on the unacceptable-sources side of the reserves table. So does one closely related item: seller, developer, or broker credits of any kind, including advanced rent payments for a seller lease back.
Meanwhile, reserves are separately and independently required:
So the realistic picture for a tenant exercising an option is: your accumulated rent credits may go toward the injection, and you still need six months of P&I sitting in a documented liquid account on top of that. The final reserves figure is measured as of the date of the final underwriting approval memo — not off the closing settlement statement.
Gift funds do not solve this either. Gifts are capped at 50%, must come from a close relative as the guideline defines that term, must be documented with a signed letter, and cannot be used to meet the post-closing liquidity or P&I reserve requirement.
Whatever the credits don't cover still has to be sourced
Rent credits are one component. The rest of the down payment and closing costs go through standard asset verification.
All funds used for down payment, closing costs, earnest money deposit and reserves must come from an acceptable source and clearly not be the result of undisclosed borrowed funds. Proceeds of a loan fully secured by other real estate you own are acceptable. Personal unsecured loans and cash advances on credit cards are not. A loan from your own business is unacceptable unless placed on full stand-by — principal and interest — for the term of the loan, with the source of funds verified. If the Purchase and Sales Agreement calls for escrowed funds, provide a cancelled check or bank statement for the funds held in escrow.
How the LTV basis is determined
Lease option or not, valuation follows the standard basis. There is no special lease-option valuation rule in the guideline, which is itself the answer to a question a lot of people ask: your years of tenancy do not create a different valuation method.
Three inputs, and the lowest governs. For a tenant exercising a below-market option, the adjusted sales price is very often the low number — so a favorable strike price generally does not produce a larger loan. It produces a smaller loan against a building you bought cheaply. That is what the lower-of test is for.
Loan-to-cost also applies here, because a lease option exercise is a new acquisition:
Read the cost basis definition carefully if you have put money into the building as a tenant: verified borrower-paid capital expenditure to date sits inside it. Capital Expenditure means a long-term investment that improves or increases value — a new roof, new HVAC. Demolition, debris removal, fixing lights and outlets, and removing carpet are specifically not CAPEX. Keep the invoices.
Maximum allowable LTVs by property type, tier, and credit program are set in the current Pricing Matrix. The figures above are the caps the guideline states directly for the situations named — ceilings, not entitlements. When one parameter approaches its threshold, others may be tightened to avoid layered risk.
If your landlord is a relative or an affiliate, disclose it now
Lease options are frequently written between people who know each other. That is exactly the fact pattern the non-arm's-length provision addresses.
Timing is the whole rule. Disclosed at initial application, an exception may be considered. Discovered later, likely decline. There is no version of this where waiting helps you.
You are probably an owner-occupied borrower
Most people exercising a purchase option are the operating tenant. A property is owner occupied when your business occupies and operates from it, when you as a natural person reside in a residential unit of it, or when it is leased to a related entity you majority own or control. To qualify, you must use 50% or more of the property's net rentable area. Below that threshold, underwriting may classify the property as an investment property instead.
Owner-occupied files are underwritten on Global DSC with a 1.20x minimum, against 1.15x property DSCR on the investor side. Business experience also drives your LTV ceiling: a standard owner-occupied business with less than three years of experience is capped at 70%, and at three years or more the program maximum applies. Restaurants, bars, and daycares are stricter — under three years is not eligible, three to less than five years caps at 70%, and five years or more reaches the program maximum.
Instrument matters: three things people call "lease to own"
| Instrument | How it is treated | Key condition |
|---|---|---|
| Lease Option / Lease with Option to Purchase | Purchase transaction | Injection based on purchase price; rent credits need lease language plus cancelled checks |
| Land Contract / Contract for Deed / Land Installment Contract | Refinance transaction | Unless it occurred within the last 12 months |
| Leasehold / Ground Lease interest | Prohibited | Unless there is evidence the leasehold will be purchased at closing and the final title policy shows Fee Simple thereafter |
The subject property must be held in Fee Simple as noted on the title policy. The loan must also represent a clear, marketable, insurable first lien; no secondary or subordinate financing is permitted. If your option agreement contemplates the seller carrying a second, that structure does not work here.
What to gather before you apply
Most lease-option files stall on the first two items.
- The executed lease agreement, with every addendum, including the option provision and the language stating the amount of rent credited toward the purchase price.
- Cancelled checks for the rent you paid. Not a landlord ledger.
- The fully executed Purchase and Sale Agreement with all amendments and schedules — and an extension if it has expired.
- Two most recent months of bank statements, or a completed FNMA 1006 Verification of Deposit, covering the balance of your down payment and closing costs.
- Evidence of six months of liquid reserves measured in P&I on the subject loan.
- Capital expenditure schedule and contractor invoices, if you have improved the building as a tenant within the last 12 months.
- Disclosure of any personal or business relationship with the landlord, at initial application.
Loans under this program run from $100,000 to $2,500,000, with maximum exposure across all products of $6,250,000 to one borrower. The appraisal must be ordered through an approved Appraisal Management Company — appraisals ordered by the broker or borrower directly are not acceptable.
What this page does not do
It does not price your loan. Maximum allowable LTVs by property type, tier, and credit program live in the current Pricing Matrix, not in this article.
It does not tell you how many dollars of your rent credit will be accepted. The guideline sets a documentation standard — lease language plus cancelled checks, with base rent checked against market — and states no percentage cap, no dollar cap, and no formula. Anyone who quotes you one is inventing it.
It does not state a minimum injection percentage for a lease option exercise. The guideline says injection requirements apply based on the purchase price and directs LTV to the Pricing Matrix; it does not publish a fixed floor here.
It does not set a seasoning requirement for the lease itself. Our guideline is silent on how long the lease must have been in place before the credits can be used, so this page does not supply a number.
It does not address residential lease-to-own or consumer-purpose transactions. All loans under this program are for commercial purposes only and are certified as such by the borrowers and guarantors.
And it is not an approval. Standards described here are general, and exceptions are considered case by case with credit team approval.
Guideline SBC 08/03/2026 · Reviewed August 31, 2026
Published August 31, 2026 · Updated August 31, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.