Understanding Your Rent to Own Agreement
Not long ago, an article appeared in the Mortgage Broker News addressing the housing market in some major centres. It talked to the challenge Millennials are having to become new homeowners. The main reasons are “rising market prices” and the “inability to save for a down payment”. Our Rent to Own program addresses both of these major concerns. How?
With our Rent to Own program, the future Purchase Price is determined “before” the Rent to Own program starts and is calculated by taking the market Value of Today and adding a moderate appreciation rate not exceeding 4% in any Canadian Market. If a property transacts at $ 500,000 today, the future Purchase Price is estimated to be $ 546,000. In a climbing Market where average appreciation is reaching 10% ++…the “Market” Value for this home will be $ 665,000. At the end of the Rent to Own term the Tenant will inherit over $ 100K in additional equity because they used Rent to Own to Cap the future Purchase Price. A GREAT DEAL for First Time Home Buyers…
In general terms, a rent to own contract consists of two agreements that run at the same time. The first is a lease that you sign on the property. The second is the purchase agreement, which sets out the purchase price that you agree to pay for the house in the future. Most Rent to Own Programs rune between 3 and 5 years, and each month during the contracts, the tenant makes a monthly rent payment which includes a Portion (20%0 which accumulates as Options Credits which are added to the Initial Down Payment to form the final Down Payment when you exercise the Option to buy the house in the future!
So let us assume you’re considering a rent to own agreement on a home with an agreed purchase price of $300,000, with a three-year rent to own term.
You pay 3% or a $10,000 (whichever is greater) deposit as your initial Down Payment down payment. Every Month you pay Rent to Own payment which includes a Savings Component. 20% of your monthly payment is added to your initial $ 10,000 deposit to form your final down payment at the end of the Rent to Own term. When you go for a Mortgage at the end of the term, you will have a Significant deposit against the future purchase price.
Basically, you will be renting a home just like any other rental. However, as part of the Rent to Own Program, you will have the Option to Purchase the home at the end of the Rent to Own Term. The Future Purchase Price is negotiated at the beginning so you know exactly what you are paying at the end of the Rent to Own Program.
ILA – Independent Legal Advice is strongly recommended and mandatory with properly structured Rent to Own programs.