Rent-to-Own, Lease to Own, R2O. They may seem like good options, but watch out for these pitfalls. They are a good program as long as you have a mortgage planner ensuring you are following a plan to succeed.
Rent to Own…what you NEED to know. My guess is you might check this option out if you:
1. Have NO credit.
2. Have credit challenges such as a bankruptcy or debt repayment plan.
3. You’re self-employed or on disability with little income to “declare”.
All valid reasons and you’re not alone. There are lots of people each year that contact me with these exact issues.
Rent-to-own or Lease-to-own is a great program for SOME people! The program allows you to buy a home today without having to meet the typical qualifications required by your banks. There is nothing cheap about these programs either.
There is NO guarantee that you will qualify for a mortgage at the end of your term; hence you may lose your deposit.
- You are buying a home based on an estimated future value, so you could be paying an over-inflated price. What happens if your house de-values over the term of your R20 contract?
- There can be (if the mortgage becomes “private”) hefty fees involved.
- You DO need an initial deposit (usually 5-10% of the value of the home).
- Terms are usually 1-3 years, so if you’re credit challenged, you may not qualify for a mortgage at the end of your contract.
- If certain documents are NOT completed up front (for lender’s future use), you won’t get the mortgage. Certain items such as an appraisal up-front, option purchase agreement, market rent reports and such must be completed and dated in the beginning.
- Only a handful of lenders will mortgage these.
When it comes time to finance your rent-to-own, you can waste a lot of time dealing with banks and lenders that don’t deal with Rent-to-Own contracts. Always connect with a mortgage broker who deals mostly with investors who thoroughly understands Rent-to-Own and, most importantly, which lenders will finance Rent-to-Own.
Remember Dominion Lending Centres have over 200 different mortgage programs that are likely BETTER, SAFER and give MORE OPTIONS than a Rent-to-Own. Banks are not your one-stop-shop for answering your questions.
You will see many websites out there with Realtors advertising they have this program, or “middlemen” that also have these sites saying how easy it is. Remember “middlemen” and Real Estate people are sales people. They may NOT be licensed mortgage experts that specialize in credit repair or mortgage alternatives. They are there to SELL you a house. Without proper and continual guidance from an experienced, licensed mortgage professional you risk losing your deal at the end.
Thank you to my DLC colleague Kiki Berg for this article.