As mortgages have been harder to obtain and debt loads have been increasing, Rent-to-Own programs have become an option that some people turn to. While this program seems like the perfect answer, it is rarely a good idea for the tenant/owner and is almost always a great option for the Investor.
The process begins by qualifying potential tenant/owners. RTO programs look at your income and credit history and usually require at least a $5,000 deposit. If it looks like you can qualify for your own mortgage in 2 – 4 years, then RTOs find an investor that will purchase the home that you choose. You agree together on a purchase price at the end of the term. You live in the house as if it is your own and parts of your monthly rent go toward your future down payment. At the end of the term, you sign an Agreement of Purchase and sale, get your own mortgage, and buy the house for the predetermined price. Sounds perfect, right?
Predetermined Purchase Price – If the real estate market goes into a decline, you are still required to pay the agreed upon purchase price for the property. Banks will only lend to a maximum of 95% of the value. In Cornwall, we assume an appreciation rate of about 4% as a general rule. However, if the value has not appreciated as anticipated, you will not get a mortgage to cover the rest of the cost of purchasing the property from the Investor… again, you lose your deposit and credits and may have to move.
Live In The House As If It’s Your Own – If there are any major repairs (such as a roof or furnace, etc), then you pay for it. In all intents and purposes, this is considered “your” house. You cannot draw from the deposit and credits that are being held in trust by the Investor other than for a down payment and closing costs. If you can’t afford the upkeep of the property, you are in breach of contract so …. You lose your deposit and credits and may have to move.
Jenni MacDonald (www.jmacdonald.ca) is a Mortgage Broker with Dominion Lending Centres The Mortgage Source (Lic.#10145). She has over 5 years of experience in the Mortgage Industry and works with at least 40 lenders including banks, credit unions, and private lenders to find the best mortgage for each client. You can contact her by phone or text at 613-551-0639 or via email at [email protected].