Renting to Own a Home has been an adopted method of purchasing homes since the 1950’s.
However it is not widely known as a solution to help renters towards purchasing their own home!!! Due to the recent economic changes, it has become increasingly difficult to obtain financing for some families leaving a feeling of uncertainty and doubt about owning a home. Renting a home with the option to buy is an ideal option to achieve Home Ownership. However it is critical to follow certain steps and ensure you do your due diligence to understand the drawbacks and the benefits of Renting to Own a home.
Renting to Own During the initial phase when you inquire with any service or person; Keep these points in mind, when you ask for an overview about Rent to Own;
- If you have you been through a bankruptcy or consumer proposal. It is not ideal to enter into a program with unless you have been discharged, as it will be challenging to build up (repair) your credit score. If usually takes 5 years or longer in some instances, from the date of discharge for lenders to look more favorably upon you when qualifying for a mortgage. Renting to own programs should typically last about 2 to 3 years and in some situations up to 5 years.
- An initial deposit is typically required and is credited towards the purchase of your home. This deposit is usually in the range of 3% or more of the homes purchase value and it is in most cases “non-refundable” if the program is not successfully executed (you buy the home).
- If the Rent to Own program is typically offered using a rent credit method whereby a monthly amount or portion of your rents will be credited towards the purchase of the home. The program should be structured to help you accumulate anywhere from 5 to 10% using the initial option consideration and monthly option credit payment(s). In some cases once you have been qualified you may find that more than 10% is suggested. Ideally if you require a down-payment of 5% (plus closing costs) it is still advisable to aim for 10% as you want the lenders to look favorably upon you when you qualify for financing to obtain a mortgage on the home. Again, keep in mind this money is non-refundable which is why you want to stay on track and work with a Mortgage Broker and Credit / Debt repair specialists that do continuous checks with you throughout the program to ensure you stay on track and improve your credit score.
- A thorough and proper check of credit and background should be conducted prior to starting your program, to ensure the program is best suited to you. This means you should be asked to sign a document that allows your credit score to be checked. During this check you may discover that a Rent to Own program is an option, but you require time to repair your credit score and without a proper credit check you may be placing yourself and your family into a less than desirable situation. Keep in mind each time your credit score is checked it does impact your rating, so keep this to no more than 2 credit checks annually which should have very minor impact. You can check your own credit score without implication to your score, however the a deeper analysis should be conducted by the correct individuals (typically a mortgage broker) to established a course of action to review credit history and set you on the right path.
- The home you will be moving into should be purchased for a price that is reasonable for the area you desire to live. The value of this property will be based upon its appraised rate at the time of your agreed upon purchase date. Therefore it is best to be knowledgeable about the market prices and area comparable plus the appreciation rate in the desired location/area.
- You should be advised to have your Lawyer review the contract agreements before entering into a program. You should and can ask to see a copy of the agreements prior to signing, there are two agreements an “option to purchase” and “rent or lease option agreement”.
- If requested, the company or person conducting the Rent to Own program should always be prepared to verify they have ownership of the home (i.e. proof of title holder).
You should be comfortable with the person(s) providing the program and ask a lot of questions, understand how the program is setup to help you succeed when you are Renting to Own a home. Take advantage of these points to help you get started and decide on a best fit to achieve home ownership. Remember this is about finding you a home and should never be a rush decision. Get Started Today!!!