What do I need to apply for Rent to Own program?

To apply for the Rent to Own program, you need to provide the following documents:

1.       A copy of your valid ID, i.e. driver’s license.

2.       Notice of Assessment in the last 2 years.

3.       Your home address for the last 3 years, name and phone number of your landlords in the last 3 years.

4.       Additional information such as your current monthly expenses including rent, outstanding loans, credit card .etc so that we can calculate the maximum house price that you can qualify for.

Once we collect all the information, you need to go through a credit check. If qualified, you will sign a Lease agreement with the landlord to Rent-to-Own the home for a term. Generally speaking, the term depends on how long you need to repair or build your credit and accumulate a minimum of 10% down payment at the end of the lease term. 

You will pay a monthly rent + option premium which goes towards your down payment. This amount varies dependent on the amount of the initial deposit you provide. Your goal is to accumulate 10% of down payment at the end of the term. For example, if the house worth $300,000, you have $6,000 deposit (2% of the home price). During the term, let’s say in 3 years, if you set aside a $300 as option premium per month, you will accumulate $10,800 at the end of the term. Your available down payment equals to $16,800 (initial deposit+ 36 months option premium), 5.6% of the home price in total.  

Rent, buy or Rent to Own your home

In the market today, there are flexible options about your home. Shall we rent, buy or Rent to Own our home? Well, It all depends on your own situation.

Rent

Everybody may have heard this before: if you’re paying monthly rent, as opposed to a monthly mortgage, you are essentially throwing your money away. However, in many situations, to rent a home is much more advantageous than own one.

1.       You don’t have to come up with the thousands of dollars in down payments, closing costs and fees such as housing inspections, legal counsel, land transfer taxes and insurance. Not to mention your monthly mortgage payment. Most mortgage payments are applied a large portion to the interest, not the capital. This is money that you won’t get back when you sell your home.

2.       You can’t always rely on getting a big tax break which is supposed to be one of the greatest advantages of owning a home. If your annual mortgage interest payment, plus any other deductions you are entitled to, isn’t greater than standard tax reductions, you will not receive any tax benefit from owning a house. However, if you rent a home, you’ll always receive some sort of tax relief, as a large portion of your rent is tax deductible every year.

3.       The enormous amount of flexibility that renting provides cannot be overlooked. You can pack up and leave immediately at the end of the lease. You don’t need to worry about waiting to sell and housing market recession.

4.       If by any chance you face financial difficulties, the financial devastation that comes with losing your home is far greater than being evicted from your apartment.

Buy

Are you ready to buy a house?

1.       Find out whether you have a budget to cover all home related costs, i.e.  Mortgage, utilities and maintenance.

2.       Whether you have a sizable down payment.  To get your foot in the door, you’ll need a down payment worth 20% of the home price. That means for a $500K home, you’ll need $100,000 upfront.  You may get lower low-down loans, but those options will cost you extra and normally come with higher interest rates.  If the market changes or your personal circumstances change and you’re forced to sell, you will lose money if you made little or no down payment.  Plus, you need to set aside 1.5% - 3%.

3.       Whether you have a steady source of income. Buying a home is a long-term financial commitment, so you’ll need a consistent cash flow to cover those monthly payments.  If you have a contract job, you need to take a good look at your future cash-flow abilities.

4.       Do you have an emergency savings fund?  You are one step closer to being prepared for homeownership if you have enough money to cover three to six months of your living expenses. You may choose to buy mortgage insurance that can cover the mortgage in cases of a serious illness, unexpected layoff or even a natural disaster that prevents you from working.  For more information, please check the Canada Mortgage and HousingCorporation (CMHC) website.

5.       Have you had your debts under control? Mortgage lenders usually will take a look at your debt-to-income ratio before they give you a mortgage.  In general, they want to ensure that your monthly housing costs – including principal, interest, taxes and insurance – will consume no more than 1/3 of your monthly gross income. Plus, your total debt payments, including your mortgage, credit cards, student loads and auto loans, will remain below 38% of your total pay. Therefore, if you have large outstanding debts, try to pay them down before applying for a mortgage to make sure you can qualify for as much money as you’ll need.

      Do you have a good credit history? The higher score you get the lower interest rate you may receive. For more information, please check the credit score chart.

6.    Do you have a good credit history? The higher score you get the lower interest rate you may receive. For more information, please check the credit score chart.

Rent to Own

What happens if you decide to purchase a home but do not have enough down payment or can’t get a mortgage? Instead of staying renting, there is an alternative option – Rent to Own - to help you own your home today.  The benefits of Rent-to-Own your own home far outweigh those of renting. Here are some of the reasons:

1.       Build equity on your own home over time. In general, houses tend to appreciate every year. Think about it, your landlord is building equity on his property, the same property that your are paying the rent for. Instead of putting more money in his pocket, why not add it to yours?

2.       Lock the home price and accumulate your down payment now rather than later. If you Rent to Own your home today, you can negotiate a future purchasing price and you can also choose to start set aside certain amount of rent as your credit towards your down payment. For more information, please check how Rent to Own homes work.

3.       Build your credit or repair your bad credit. For those who never have any credit history or those deal with challenging credit situation, Rent-to-Own is a good way to build or repair your credit. Normally it will take 2 or 3 years to build healthy credit history dependent on your credit score. For more information, please check the credit score chart.

4.       Start to stay at your future home today. Be your own boss and do the upgrades and improvements that you couldn’t do when renting.  If you Rent-to-Own your home, most likely you can have pets living with you.

How long does it take to repair bad credit?

A credit score is rated on a scale of 300 to 900 points, with a higher number being a better score. The following table will help explain what impact your score will have on your borrowing ability:

Score range	Impact
300-649	You won’t be able to get credit at this point. You will have to continue paying your bills on time and waiting for your score to improve until it reaches the next level.
650-699	If you are paying your bills on time and reducing your debt levels diligently, you can get the 600 level in about 3 years. But at this stage, you still present a pretty significant risk to lenders. You do get some credit but most likely come at a fairly high interest rate.
700-759	You shouldn’t have a problem getting credit and it will come at reasonable interest rates but not the best rate. Most likely you won’t be able to get this level less than 4 years even with the best consumer behaviors.
760+	If you reach this level, you will get the best interest rates in the market.

 For more information, please check the Office of Consumer Affairs (OCA) website.

Does Rent-to-Own fit for you?

Rent to own home can be the ideal solution for you if:

·       You are a young couple just starting up a family.

·       You decided you want to own instead of rent, but were turned down for a mortgage by the bank because you have bad credit or you don’t have a credit history.

·       You have a steady income but not enough down payments.

Rent to Own - Benefits and Risks to Sellers

Rent to Own Benefits to Sellers 

·         If the home values are falling at the end of the term, sellers can lock in a higher price at the start of the agreement.

·         Renters who are willing to buy the home generally treat their living space better as they are planning for their future.

·         At the end of the term, if buyers decide not to buy the home, the sellers will keep the original deposit and savings credit as income.

Rent to Own disadvantages to Sellers

·         If a new potential buyer who wants to purchase the home at the end of the agreement with a higher price, the seller still has to abide by the agreement signed with the previous buyer.

·         If buyers decide to buy the home at the end of the agreement, it’s difficult for the sellers to buy another rent-to-own property at that price offered to buyers.

·         Most sellers use the rent they earn to pay the existing mortgage on the rent-to-own property. If the rent can’t make payments, few sellers can afford to pay both rent-to-own property and their own home mortgages, which could force them into foreclosure.

Rent to Own - Pros and Cons to Buyers

Rent to Own advantages to Buyers

·         Buyers have time to accumulate money for down payment and repair their credit history as they rent the house.

·         Buyers can stay in their dream home today at the cost of renting it. No delay!

·         If the housing market collapses at the end of the term, buyers can walk away. Although the buyers will lose the original deposit and all their savings credit, the amount will be much less than if the buyer had bought the home outright and tried to sell it later.

·         At the end of the term, there won’t be any closing costs involved.

Rent to Own risks to Buyers

·         If the buyer is late on a month’s rent payment, even it’s one day late, most agreements void the savings credit for that month. Therefore, the buyer in the rent-to-own agreement must pay on time, every time.

·         Buyers still have to pay the upfront deposit. It’s usually 3% -5% of the agreed-upon selling price of the home and is often thousands of dollars. It may be difficult to accumulate that much money before renting although it goes to the down payment should the buyers decide to buy the home.

·         All those responsibilities and repairs are the responsibility of the buyer, even during the rental period. i.e. cut the grass, shovel snow or replace a stove.

·         At the end of the term, the buyer still may not be able to buy the home for various reasons: insufficient down payment, bad credits and/or unstable/not enough income.

How rent-to-own homes work

What happens if you want to own a house instead of renting but do not have enough money saved for a down payment or your credit is not good enough?  For many, the rent-to-own home may be the best option.

The process works similarly to a car lease: You have to pay a certain amount each month to live in the house and at the end of a set period, generally within three years; you have the option to buy the house. A portion of the monthly rent you pay goes toward as your down payment to eventually purchase the home.

Before entering into an agreement, both sellers and buyers need to agree on the sale price and monthly rent. Both amounts are subject to negotiation, just as a regular sale would be. Once they sign an agreement, the sale price of the house is locked in until the end of the term. Even if other housing prices rise or fall in the same area during the time period, the original agreed-upon price is final.

Renters need to choose which savings credit options they want.   The savings credit is a set amount that the renter pays the seller. If, at the end of the term, the renter buys the home, the credit becomes part of the down payment. If the renter doesn’t buy the home, the credit becomes income for the seller. Typically, rent premiums are an amount slightly above the normal rent, with a portion of that money going toward a down payment.

Here is an example:

Current Market Value	290000
Annual growth rate	5%
Home price in first year	304500
Home price in second year	319725
Home price in third year	335711
	3%	5%
Deposit (3% -5% for the current price)	8700	14500
	"No" Savings program	"Gold" Savings (10% credit)	"Platinum" Savings (20% credit)
Monthly payment	1550	1650	1750
Monthly savings credit earned	0	165	350
Actual rent paid	1550	1485	1400
Savings credit earned in first  year	0	1980	4200
Savings Credit earned in 2 years	0	3960	8400
Savings Credit earned in 3 years	0	5940	12600

What is Rent to Own?

Wiki definition – Rent-to-own, also known as rental-purchase, is a type of legally documented transaction under which tangible property, such as furniture, consumer electronics and home appliances, is leased in exchange for a weekly or monthly payment, with the option to purchase at some point during the agreement.

Simply put, rent-to-own is renting with the option to buy. The deal is setup using an Occupancy Agreement and an Option to Purchase Agreement.

For more information, please check how rent to own homes work.