Are you thinking the only option for you to buy a house in Hamilton, Dundas, Ancaster, Stoney Creek or any of the surrounding areas, is to have a big down payment, great credit, and a great job?
That is the ideal way, however, if you are new to Canada, or your credit rating is a little low after a divorce or separation, or you have been in your current job for less than a year, you may not qualify for a traditional mortgage.
There are other options if you fit into one of these categories, so it is really a good idea to make sure you have talked to a Mortgage Broker. Rent To Own can also be a great option, which more and more people are considering.
What is a Rent-To-Own?
Pretty much exactly as it sounds. The owners of a home, house, condo, townhouse etc., RENT to a tenant and give the tenant an option to BUY the house at the end of the lease, for a predetermined price.
Who Does It Benefit?
This is where you need the help of a Real Estate Agent you trust! Sometimes it sounds good up front for both the owner and the tenant, however, depending on how the agreement is written there may be very little risk for the owner and the increased cost for the buyer may totally outweigh the proposed benefit. It can also be a great way for people to get started in the Real Estate Market in Hamilton, and perhaps buy their first home! It is imperative that the company or people offering the Rent-To-Own option are legitimate, so make sure you do some checking to make sure.
How Does It Work?
The BEST way this process works is when a Legitimate Rent To Own Company(such as Ownership Solutions) helps you buy a property that you help choose. You start by seeing if you can be approved for the Program to make sure you will qualify for the purchase. It is like getting a Pre-Approval for a mortgage.
You want to make sure that you will be in a position to actually take over the ownership of your new condo, townhouse, or detached home, at the end of the contract. At this time the owner would ask for a deposit (about 5% of the asking price of the home) which would be held by the owner and put towards the price of the home at the end of the lease. Then, the owner sets a price for the monthly rental. If the rent is usually $1700 per month the rent-to-own price could be upwards of $2000 per month with $300 - $500 going towards the downpayment.
After 2 - 3 years those credits accumulate on top of your original down payment and mean you should have a 10% down payment saved on the house. As the tenant, you will have your credit repaired enough to be approved for a High Ratio CMHC (Canada Mortgage & Housing) Mortgage, and at this point buy the house in your own name. This can be a viable option for people who can AFFORD to buy a home, but might not QUALIFY for a mortgage.
They may not qualify for a number of reasons, such as....
Poor Credit Score
(lowest 300 - 700 is a low average)
Short Employment History
(less than 1 year)
Separation Agreement Not Finalized
The GOAL is that by the end of the lease, you will be able to qualify for a traditional mortgage.
What's The Downside?
Another example of how a Rent to Own can be offered is that the owner of a property, which can sometimes be in a less than desirable area, offers to sell their tenant or prospective buyer the house. The seller/landlord sets a price for to be paid at a future date. The Owner and Tenant would then sign an Option to Purchase document (which should be conditional upon both sides having their Lawyer review). In this scenario, the tenant/future owner has NO CONTROL over actually picking a house they like! They are just buying the house because it is being sold as a Rent to Own.
Other downsides include the potential for losing money. If the tenant decides to break the agreement for any reason, they may lose their deposit, and depending on how the contract is written, may lose all the money that was put aside for the down payment or they may receive a very small portion back. Also, in some cases, the agreement may be void if the rent payment is late, and the deposit would be at risk. The proposed purchase price is usually higher than Market Value of the property because the owners know there may be very few opportunities for the tenants to buy a home otherwise. Make sure you have your Real Estate Agent help you determine if this is a FAIR Price!
Before Entering Into A Rent-To-Own Agreement...
BEFORE you sign anything, sit down with your Real Estate Agent and go over all the pros and cons for your individual situation. Go through the past sales of the area you are considering. Make sure this is a house you would still buy even if you were not buying it with a Rent-To-Own Agreement. Is also imperative you get aLAWYER to review any contract before you sign.
Rent-To-Own can be a WIN - WIN situation. Just make sure you have someone on your side looking out for your best interests and keeping you and your family safe! Make sure you are using a Reputable Company.
What to see if YOU would Qualify for a
Fill out thisQuick YES / NO Rent to Own Application. Once you complete the form, you will receive an e-mail that your application has been received. Within 5 minutes you will have an answer. This is a quick easy way to see if you might qualify for this type of purchase.
Or, fill out thisComplete Rent to Own Application. Once you complete this form you will receive an e-mail that your application has been received. A more in depth review of your application will take place. You will have an answer usually within 48 hours. If you do qualify, a detailed pre-approval package will be sent to you.