Rent to Own

Jeff Evans

The idea of rent to ownhas been getting a lot of media attention lately as buyers in all geographic areas and economic positions look for ways to have their money work more effectively for them.

The “rent to own” strategy has been very active in the United States for years, and with the newly increased media attention it is starting to become a more viable option for homeownership in Canada as well.

Who Would “Rent to Own”?

Rent to own is mostly used by those who would not normally qualify for a mortgage through a regular bank application. This could be due to not having an adequate down payment, or hiccups on their credit history, or they may be behind in Revenue Canada payments. Some who are self-employed or have occupations with unverifiable incomes may also consider the rent to own option.

How Does it Work?

This option, also commonly referred to as lease to own or option to purchase, works by having the tenant pay a certain amount for a set period of time. After that time, the tenant has the option to purchase the property for a lump sum, minus any previous rent payments applied to the purchase price.

There is usually a predetermined, initial deposit from the prospective tenant. Here is an example of how rent to own could work.

Purchase Price $350,000.00
Deposit $5500
Monthly Cost $2000 (Rent = $1500 and credit toward home purchase = $500)

After 24 months the full required 5% down payment is saved:
$5500 + (24 X $500) = $17,500

You would then need a mortgage of $332,500 to complete the purchase of the home.

Make Sure You Have a Plan

For whatever reason you are looking at “rent to own”, ensure that you have done your homework and that you have an action plan to ensure your investment is safe. If you have credit issues, ensure you work with your CENTUM Mortgage Professional to get a plan in place to rebuild your credit. If you have self employed income, seek ways to have your income verified. Your CENTUM Mortgage Professional can assist with this as well.

Read the Fine Print

So here are some things that may not be readily available to the general consumer:

  • There is no standard contract for “rent to own” in North America
  • Rent to own is not covered by the Residential Tenancy Act in most provinces nor do they facilitate any sort of mediation for those who have entered a rent to own agreement.

For your best interest, you should have a contract drawn up by a lawyer or notary public and signed by the “landlord”. The cost would be around $500, but it will lay out a clear understanding between you and your landlord as to how the process will be conducted.

What Questions Should You Ask if Entering into a “Rent To Own” Agreement
What is the term of the agreement? Customary “rent to own” agreements say that the tenant makes all repairs to the property for amounts under $500. You should then ask how repairs over $500 are going to be handled. Will they be reimbursed? Should circumstances arise and you are late with your rent, ensure that you have an agreement in place that your investment will not be lost.

With the imposed tightening of the mortgage approval process, homeownership has indeed become less attainable for some. Rent to own is one option that is relatively new to Canada. If you are considering this option, do your homework.

Author: Jeff Evans

I am a mortgage broker, hair salon owner, squash player, student, and husband, aspiring to do good for people.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Articles

Vancouver mortgage broker with “lower” fees
Jeff Evans
No Comments

I have had a in interesting case with a returning client who came to me recently for help with his mortgage.  As a mortgage broker in Vancouver, it is necessary to be creative in making solutions work for my clients, which currently can often involve secondary or private lending solutions.  This was a case where such creativity would be necessary.Read More

home buyer mortgage broker
First Time Home Buyers Mortgage Broker Tips And Tricks
Jeff Evans
No Comments

Among the services I provide to my clients, I consider myself to be a "first-time home buyer mortgage broker".  As a first time home buyer mortgage broker, I know how difficult it is to get into the real estate market, particularly in Vancouver, and it brings me a particular amount of job to help someone get past the challenges if being a first time home buyer.

I have recently completed an e-book and will be launching it soon.  I believe it will be very helpful for not just first-time home buyers, but for anyone who is not as knowledgeable in residential mortgage lending, about how to make your home buyer mortgage broker application appealing to a mortgage lender.

As a sneak preview, here are three tips on improving your mortgage application as a first-time home buyer.

3 Home Buyer Mortgage Broker Tips

  1. Take advantage of the home-buyers plan to fund your down-payment.  This program is not technically ONLY for first-time home buyers, but all first-time home buyers are eligible.  Under the plan, you can borrow up to $25,000 from your RRSP for the purchase of an owner-occupied residence.  If you and your spouse are both applying, then you can withdraw $25,000 each. It is a loan, so it has to be paid back over 15 years (or 1/15th of the loan will be added to income for that year).  However, there is no withholding when you withdraw it, it does not have to all be declared as income on any given year, and you don't even have to use all of it for down-payment!  You can use it for any purpose that you need it for. A good mortgage broker, like myself, can help you with some of the finer details and complex situations that often arise from these situations.
  2. Make sure you pay your bills on time. If you have a high balance on your loan, or you have a lot of debt, those also have a significant negative impact on your credit score, but you can get the bills down and there is no record of your high debt levels.  However, when you miss a bill payment, it stays on your credit bureau for 6-7 YEARS.  This not just negatively impacts your credit score, but lenders look at this when assessing risk, and they have been particularly uncompromising and (unreasonable, paranoid, strict...and other words that I cannot put in print) in the last few years.  While you likely do not have to wait 6-7 years to become bankable if you have had gone through a period of bad credit, the less negative credit on the bureau, the better. At least make the minimum required payments and you will go a long way to making yourself appealing to them.
  3. Having no credit is just as bad as having bad credit. Many people feel that not requiring credit should prove your ability to pay your bills and should be good evidence of credit-worthiness.  This is not how mortgage lenders think.  If you currently do not have any credit, then you do not have any documentation that you are an acceptable credit risk, and no matter how strong your income is, you will have difficulty obtaining a prime mortgage approval.  Make sure you have at least 3 different credit facilities in your name.  (Secondary credit cards in a spouses name are not considered acceptable for establishing your credit).

I am excited to launch my home buyer mortgage broker e-book soon, in which I go into much greater detail and give many different ideas to help home buyers prepare for home ownership, but as a mortgage broker in Vancouver, you are welcome to contact me in the meantime to discuss your circumstances and see if there are any options for you.

mortgage broker Vancouver BC
Good news regarding OSFI rule changes
Jeff Evans
No Comments

This is just a quick note to let viewers know that IF you are one of the people with 20% or more down-payment and are in a position that the new OSFI rule changes affect your pre-qualification, that I can extend the current guidelines into the new year by up to 120 days provided that I have an application and am able to get a pre-approval in place with a lender for you before January 1.Read More