For a consumer wanting to buy a home but has been declined at their bank due to lack of down payment or Credit rating, renting to own could be the perfect solution. To start off, renting to own is an agreement whereby an investor rents out a house to a tenant and gives them the option to purchase the property after a certain period of time at a predetermined price. In today’s economic climate and tighter Banks guidelines, more and more families are turning to Rent to Own and becoming homeowners “today” despite what their bank is telling them. Rent to Own is a Great alternative solution when traditional means fail you.
The Basics of a Rent to Own Agreement in Canada.
Not long ago, an article appeared in the Mortgage Broker News addressing the housing market in some major centers. 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?
1. 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 Capp the future Purchase Price. A GREAT DEAL for First Time Home Buyers…
2. For Consumers looking to buy a New home using Rent to Won, we have 2 programs available:
A. 3% Starting Down Payment
B. 5% Starting Down Payment
Which one will you qualify for? Call us for details…
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 a $ 9000 deposit as your initial Down Payment down payment, which will end up needing to be at least $15,000 (5%). You’ll split the remainder ($6,000) by the 36 months of the lease term, so each month you’ll contribute $250 more toward the final down Payment. Remember, though, if anything happens to void the purchase agreement, the seller keeps the $9,000 deposit as well as all of your down payment credits.
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.
There are some other things that you need to know before you enter into a rent to own agreement. If you get to the end of your term and can’t get approval for a mortgage, whether through a bank or non-traditional lender, then you lose your down payment deposit, and you lose the Option credits you paid you paid monthly as part of the Lease Payment. This is why a Rent to Own program MUST have a Exit Strategy to address he shortcomings the bank used to decline the initial mortgage application. Normally this includes things like Credit Repair/Management. Make sure the Rent to Own Program has a pre-defined Exit Strategy.
In some contracts, the purchase option voids if you are late for even one payment, so you want to get a Lawyer to review your contract before signing it to make sure that your paperwork doesn’t contain any surprises. ILA – Independent Legal Advice is strongly recommended and mandatory with properly structured Rent to Own programs.
You’ll also want to read about maintenance costs – in most cases, you as the tenant handle routine maintenance and repairs, but in some cases the seller will cover major maintenance issues. ILA should also address this.
Benefits of Rent to Own Canada with HOS Financial…
You get into the home of your dreams TODAY!
Get into a Home and Capp the Future Purchase Price!
Get into a Home even if your Credit is Bruised!
Get into a Home today with a lower Down Payment!
Get your Family settled into their neighborhood and Schools!
You get your Credit Profile improved to meet Bank Lending Guidelines!
Stop Paying Rent!
CHANGE YOUR LIFE!
If you’re at a point where you just need a couple of years to get your credit to the point where a bank will talk to you, and you just haven’t been able to save up a down payment to purchase a house, then a rent to own situation can work out great for you! Take a hard look at your finances, though, and make sure that you can satisfy all of the conditions of the contract. If this sounds right for you, give one of our rent to own representatives at HOS Financial a call today. We’ll go over our system for helping buyers like you find the home of your dreams and move in while you’re still financially preparing to buy it.