With real estate prices at historic highs and affordability seemingly farther away than ever before, many people are tempted to enter into a Rent to Own agreement. They promise to provide the allure of having a portion of your rent going towards your down payment and locking in a purchase price and at the same time, while not having to save for a down payment, have satisfactory credit, or even have sufficient income to purchase a home today. It can seem like being given your home today with a future promise of ownership.
Sound too good to be true?
What could go wrong some may ask?
It turns out a lot can go wrong!
These agreements contain a standard rental agreement, along with an option to purchase the property at a later specific date at an agreed upon price.
As a Hamilton Mortgage Broker, I can tell you the biggest obstacle in exercising the option to purchase, is the down payment. Neither lenders or mortgage insurers recognize the “extra” rent you are paying as an allowable down payment. You’re not told this when entering into these agreements and you typically won’t find out until you apply for a mortgage. No matter how much your income has grown by and your credit scores have increased too, you will not qualify for a mortgage with a traditional lender unless you have been saving a down payment through traditional saving methods.
The only saving grace in recent years is that the agreed upon purchase “option price” has been significantly below the “market” price of homes. As a Hamilton Mortgage Broker with a strong network of Private Mortgage Lenders I have been successful at being able to arrange a Private Mortgage in these scenarios lending against the higher market value so that our client didn’t have to come up with a down payment. After a period of time I was then able to refinance the mortgage with a lower rate product with an institutional lender.
If they would have had the misfortune of dealing with a Hamilton Mortgage Broker that wasn’t familiar with this scenario and how to provide an effective solution, the client would have lost all of the “additional rent” that they paid over the years and been out thousands of dollars.
This is another example of our experience paying huge dividends for our clients.
For more information on mortgage for Rent to Own Purchases, please contact your local Grimsby, Hamilton or St. Thomas Mortgage broker, the Canadian Mortgage Authority Team.