Q: What do you mean by Rent-to-Own?

A: Actually, “Rent-to-Own” is quite simple. A contract is signed between You and the Seller for an agreed price, length of time, (usually between 1 and 3 years), although we have seen contracts for a longer period of time. You pay a down payment of usually 3 to 5% (sometimes even zero down). The more you put down the lower your monthly payment. You don’t have to qualify for a mortgage from the bank until the end of the contract because the Seller leaves his/her mortgage on the home. Part of your rent goes towards that mortgage. You also pay a monthly amount of usually between $100 and $300 towards a down payment fund. This fund builds over the life of the contract to add to the down payment. At the end of the term you find your own bank financing and pay the Seller out.
The Seller cannot change or get out of this contract during the term of the contract. If you wish, you can sell the home at any time during the contract and pay the Seller out or sell the contract to recoup your down payment.

Note: For all intent and purposes, this becomes your home.

Q: How do you calculate my monthly payment? 

A: The monthly payment is basically what you would pay if you bought it in the traditional way with a mortgage. Instead of paying a bank, you would pay basically the same monthly payment as if you had a mortgage. Your payment also includes a portion for taxes, insurance, and strata fee (if any) just like yo would have to pay if you were an owner. In most cases we set up an initial rental term of 24 months. You get a credit of a portion of your monthly payment each month toward the purchase price. This might work for you because you can take ownership stake without having to put down payment up front. You know it will become your property and we cannot sell it for the term of our agreement. If you cannot purchase with the bank at the end of 24 months we can extend as long as the market has not significantly increased. If it has, you will be buying an under priced property and financing should be easy. If it hasn’t we may agree to continue and you will continue to build equity.

Q: Why are these homes offered as “Rent-to-Own” rather than just sold. Is there something wrong with them?

A: The real estate market tends to follow a cyclical pattern with long stretches of slow difficult markets and at times relatively hot markets.  Often, houses sit on the market for many months (sometimes up to 24 months), with very few buyers making offers. If you owned a home that was empty in which you were making payments on, you would be very anxious to have it sold as quickly as possible. Many homeowners are in this position and would rather sell their house over time than lose thousands of dollars while its stays vacant, or sell at a price far lower than its current value.

We buy homes from Sellers in this position. We also buy homes that are about to go into foreclosure or are in distress for a number of reasons. We are then able to offer them at a fair price to buyers like yourself who cannot qualify for a mortgage today, but would be able to qualify at a later date such as 3 years for example.

Q: Am I paying more for the house than I would if I purchased it the old fashioned way?

A: Since we works directly with the Sellers, there are no real estate commissions, legal fees and other carrying costs. We obtain these houses at a very good price, make a modest profit and you pay virtually the same price as you would if you purchased it the traditional way.

Q: When is the purchase price set?

A: At time of negotiations before you move in. The purchase price of your home is set today for future delivery, similar to an equity option or like leasing a car. The term of the Rent-to-Own agreement is also determined at this same time, at time of negotiations.

Q: Why buy instead of waiting until I can qualify for a mortgage?

A: That is a decision you have to make. Of course, their maybe several reasons why you don’t qualify for a mortgage at the present time. Many of our clients have been renting for years and can never find a way to get themselves off the renting treadmill. With our creative financing techniques, you accumulate down payment credits. Some of the questions to be asked is how can we improve your credit rating? Do you need to apply for an RRSP loan to further establish credit and take advantage of tax benefits? Does your outstanding credit have to be refinanced? What about your job? Employment income? What futher action can be taken to increase your down payment if possible? These are just some of the issues to be looked at.

Q: How long will my Rent-to-Own agreement last?

A: Rent-to-Own agreements are based on the financing, but anywhere from 1 to 5 years. We structure our agreements so that you can complete the purchase at any time during the term by simply advising us. We will do the rest to complete our agreement with you as quickly as you want us to do it.

Q: What if we can’t qualify for a mortgage at the end of the term?

A: Our goal is to sell the home. We do not want to get the house back. We will do our best to extend the Rent-to-Own Agreement or work out an alternative solution to meet your needs. However, if you feel that you may not be able to qualify in the number of years allotted, then Rent-to-Own may not be the solution for you.

Q: No one I know has ever heard of this before, is this legal or what?

A: Rent-to-Own is now an agreement used all across Canada. As for our company, we are part of a large network of people who specialize in creative real estate solutions for Buyers and Sellers alike. Some of our Associates have been doing Rent-to-Own agreement for well over 10 years.

Q: How are Rent-to-Own monthly payments calculated?

A: When we obtain these properties, they have existing mortgages in place. The Rent-to-Own monthly payment is based on the mortgage cost (principal, interest and insurance) plus the property tax and strata fees (in the case of a townhouse or condo). We compare the mortgage cost structure and market economic rent for the property. At times the Rent-to-Own monthly payment can be lower than a comparable market rent, a subsidy to you. This occurs because the mortgage registered on title could be much less than the value of the home. However, as a general rule of thumb, Rent-to-Own monthly payments are quite similar to the market economic rent for the property available. Any payments over the “carrying costs” or Rent-to-Own go directly to your down payment fund. If you decide, you can also make additional monthly payments, so you can increase your down payment over time.

Q: How does making larger monthly payments help me?

A: The more equity that you have in your new home, the better chance that you have in obtaining a conventional mortgage from a bank or other lending institutions and at preferred interest rates. The higher payment you make in excess of your “carrying costs”, the greater down payment credits you will accumulate towards purchase of your home.

Q: What if I want to pay down a lump sum, can I do that?

A: There are no penalties or additional fees if you want to make a balloon or lump sum payment at any time during the Rent-to-Own Agreement. You may do so and it will go directly to your equity.

Q: Can I take ownership of the property before the end of the term?

A: Indeed YES! If you are ready to qualify for a mortgage during the term of your Rent-to-Own contract, you can exercise the option to purchase and take title to the property. In some cases, some of our clients have paid full in cash due to an unexpected inheritance or other goodwill ie. bonus from work, investment, lottery winnings.