Thanks for the replies BUT I figured out the answer myself .... not worried about being sued I got PREPAID LEGAL on speed dial.....

Consider any due on sale clause filing an option.Owner occupied, have a mortgage originator qualify the buyer.Do not put contingencies in an option that require performance, like paying rents agreed, it will invalidate the option making it a purchase contract, an optionee may not be required to perform in any aspect under an option.The lease and option are separate contracts, the lease may require performance, like paying rents as agreed.A residential tenant may not be responsible for repairs, IRS requirements.On a 3 year option, it will be better if you were to pay $3,600 as seller concessions to closing costs, she must pay pre-paids under most mortgages.

Credits to settlement costs excluding pre-paid items such as insurance or taxes, is not financing as those credits don't reduce the purchase price. 

Here are the specs:HML:purchase price: $60,00010% downrehab est: $7,000 ( We have to figure in rehab to get the loan amount up since they only finance 90% of the purchase price and the loan amounts start at $60,000)Total Project Cost: $67,000 (purchase and rehab)down payment: $6,700origination & closing costs: $4,000escrows/prepaids est.: ~$2,300Total est. cash to close:~$13,000monthly interest: $552 ( 10.99% APR for 12 months and interest only payments)The total cash to close for both deals is around $26,000CONVENTIONAL: 20% down to close, 4.75% interest rate, 30 year I would want to do a cash out refinance with both properties eventually anyway, so which one should I go with?

Should I use any prepaid legal services?

So I assumed the lender's title insurance can be capitalized as part of the cost basis and depreciated for 27.5 years.3) Prepaid Home Insurance. 

I'm allowing them to apply their pre-paid last month rent to the month of November.

Noticed my loan lender closing cost details shows they charged 10Months Property tax prepaid.

The information below was provided by a Loan Officer for my Closing Cost as the Buyer/Borrower and Title Company for the Seller's Closing Cost.Loan Information$185,000 = Loan Amount$9,250 = Conventional Loan Down Payment (5%)$4,980 = Estimated Closing Cost: (Processing Fees, Underwriting Fees, Appraisal, Appraisal Review Fee, Title Insurance Services, Settlement Fee, Administrative Fee, Courier Fee, Owner's Title Insurance, Lender's Title Insurance, Recording Fees, City/County/Stamps, & State Tax/Stamps)$2,120 = Estimated Prepaid/ Estimated Reserve Cost: (Daily Interest, Home Insurance, & Property Taxes)$16,350 = Total Cash at Closing from Borrower$1,000 = Estimated Monthly Mortgage Payment: (P&I, Hazard & Mortgage Insurance, & Real Estate Taxes)Seller Closing Cost$0 = Agents Commissions: (No REA involved in this transaction per Seller's request)$900 = Total Cash at Closing from Seller: (Estimated Doc.

the prior comment about closing earlier to middle about hte 45 day until debt is due is true, but that's because you've already pre-paid it...This is real estate investing.