There are 5 main prospects where Rent-to-Own can make the difference between buying a home and not buying a home because they are unable to get pre-approved through the bank.
- Self-Employed/Business Owners
- Divorced
- New to Canada – waiting for PR
- Just started a New Job
- Clients with Student Loans
The minimum requirements are:
$100K+ combined household income
$20K+ downpayment
How it works:
The buyer gets pre-approved through a Rent-To-Own approved Mortgage broker. The interesting part of this process is that the buyer gets to choose the home (within the approved price range and areas that are approved, and most areas in Toronto, GTA and surrounding regions are). The buyer goes out to showings with their realtor, the buyer selects the house, when a house is chosen, the realtor sends the listing to the mortgage agent/broker for approval. If approved an offer can be submitted and the details of the buy back after the 24-48 month rent to own term is also pre-determined.
The whole process is very transparent, a monthly payment with a savings plan to prepare the buyer to get into a position to buy the property after the agreed to term is over. They will have a proper down payment and a plan to improve their debt load is followed during the term as well .
The selected investor buys the property, they become the buyer, they go on title and, more than likely an inspection condition will be mandatory, however in hotter markets, there is some leeway. The reason the home inspection is important(I believe Home Inspections are always important), is that the investor wants to protect themselves and the buyer as well, to avoid the buyer getting into a home that ends up needing a lot of work to bring it to a liveable state.
Once a deal is accepted, the buyer moves in on the closing date, they can treat this as their home, because it is for all intents and purposes and therefore renovate, improve the property because at the end of the term, your pre-determined buy back price has already been established when the property was originally purchased and any improvements will more than likely make the appraised value higher than the pre-established price.
This is a summary of what rent-to-own looks like. Having trouble getting pre-approved by the bank, and you meet the minimum requirements above? This may be your entry into becoming a homeowner. Next Blog will talk about another alternative to get into home ownership, if you just need help with the down payment.