What is Rent to Own?
Renting to own consists of two separate contracts. The first contract is an Occupancy Agreement (Rent to Own Lease Agreement) and the second is an Option to Purchase Agreement. The Occupancy Agreement is similar to a rental contract. The Option to Purchase Agreement is the contract stating your intentions to buy the property within a specific period of time.
Our Rent to Own Program requires a deposit of 4% of the property’s value which we call “Initial Option Payment Credit” (Non-refundable). To purchase the property you will need at least another 3.16%. This 3.16% is divided by the number of months in your Occupancy Agreement and added to the market rent of the property. This is done to make sure you have at least the full 7.16% down payment and closing costs to buy the property. We are flexible in that the higher your deposit, the lower your monthly payments can be.
Suppose you want to buy a property that by our estimation will be worth $299,999 at the end of your Occupancy Agreement in 2 years and you only have $11,000 or approximately 4% to put down as the Initial Option Payment Credit. You will still need another 3.16% or $10,800, so we divide the $10,800 by the number of months in your Occupancy Agreement to give us the Monthly Option Payment Credit. This will be added to your current market rent and is non-refundable. Basically, we let you pay your down payment one month at a time.
Banks have strict lending policies that restrict many individuals from qualifying for a mortgage. But with Rent2OwnAlberta it’s easy to qualify. The program is flexible and can be customized to your needs. If you have a reasonable Initial Option Payment Credit and good income to support the additional Monthly Option Payment Credit, you should qualify.
In addition, our mortgage broker and or credit counselor will help you rebuild, repair or establish your credit. They will review your credit report with you and provide you with a personalized plan for you to follow. Our tenant/buyers love it because it gives them time to save up for a larger down payment, time to clean up past credit problems or time to sell another home.
What does an example transaction look like?
Lets take another look at the sample Starter Home:
– Two year lease term
– Monthly lease payment of $2,150 (includes paying own property tax bill~$400, includes $450 rental credits that will be refunded at end, tenant covers utilities, contents insurance, pays for maintenance as it arises) * (technically its market rent of $1400 plus property taxes, plus rental credits towards downpayment, plus utilities, plus tenant insurance, plus maintenance costs if any)
– From total lease payment monthly credit towards final purchase of $10,800($450*24) (Total of $21,800 by the end of year 2)
– Option to purchase at end of Year 2 – $299,999 (Future Property Value)
– Initial Deposit of $11,000 (~4% of $299,999)
– Option to purchase at end of Year 2 – $299,999 (Future Property Value)
– Combined credits of $11,000 and $10,800 go towards eventual purchase (representing ~7.16% of total future value to cover your down payment and closing costs)
-During the two year lease term, the tenant works with a credit specialist or mortgage broker to ensure they are able to qualify for a mortgage at the end of the two year term.
How Long is the Rent-to-Own Agreement?
We rent you the home for a period of 2-3 years with the Option To Purchase at the end of the rental period. Our tenant/buyers love it because it gives them time to save up for a larger down payment, time to clean up past credit problems or time to sell another home. We are obligated to sell the home to you. However, you are not obligated to buy. When you purchase the home 100% of your Initial Option Payment Credit and 100% of your Monthly Option Payment Credit is credited towards the purchase price of the home. These credits will act as your down payment. If you decide not to purchase the home you will lose your Initial Option Payment Credit and your Monthly Option Payment Credit. We commit ourselves to helping you at a great financial expense, so it’s only natural for you to lose your credits for not keeping your commitment. We do all we can to make your dream of home ownership a reality so please help us help you. Do not join our program unless you are truly committed to home ownership.
The purchase price will be established up front before signing and is based on the projected value of the home at the end of your rent-to-own occupancy agreement. If the property appreciates more, which is very possible, you benefit from that increase.
Historically Grande Prairie properties have appreciated at 4% per year. Should the property appreciate more in that time you get the home with the extra equity built in.
I have bad credit and have been turned down by banks – can I still Rent to Own?
Yes – in fact most tenants we work with have credit issues that need time to heal. Perhaps you had a past bankruptcy or some debts that need to get repaid. Providing you have strong monthly income and the ability to repair your credit, we can likely get you in your dream home right away.
I like your program but don’t have a down payment – can I still qualify?
We require a small purchase option down payment for every property. Without this it will be extremely difficult to ensure your end purchase is successful. Have you tried looking to family members or investments for downpayment assistance?
What Makes Someone A Good Rent to Own Candidate?
Low or No Credit – If a potential buyer has been turned down by a bank because of credit problems a Rent to Own can work for them. However, it is important for the buyer to have a realistic plan to get their credit back on track. (We have a program designed specifically for this.)
New to Canada – Another situation where a Rent to Own can be useful when a buyer is new toCanada. Often when new immigrants come to Canada qualifying for a mortgage can be difficult. A Rent to Own allows the new Canadian to get a foot on the property ladder earlier than would otherwise be possible.
Newly Self-Employed – Buyers who have been self-employed for less than 2 years will find it difficult to qualify for a mortgage at a typical bank. Since most lenders require a history on your self-employment income a Rent to Own can give the self-employed buyer a chance to get their business going while still working towards homeownership.
How long does it take to get into my new home?
A typical transaction can take 6-12 weeks. It largely depends on the house you choose and the closing date negotiated with the vendor. Sometimes a house may be sitting empty and we can complete the transaction in under two weeks. Other times the vendor may already be living in the house and may require time to move out and find their new home.
What sort of legal agreements are involved?
A rent to own tranaction is typically governed by three legal agreements:
Lease Agreement – a typical rental agreement outlining the conditions of the rental term and lease payments.
Occupancy Agreement – outlines the responsbilities of the tenant and owner.
Option to Purchase – outlines the final purchase price and closing details (anywhere from 24 to 36 months from start of rental term)
As with any legal transaction, we encourage you to review the documents with your lawyer.
What happens if we do not buy the house at the end of 3 years?
We hope by choosing your own home that this will indeed be your eventual home. However, sometimes life happens and situations change. We deal with this on a case by case basis, but normally given enough notice, we will allow you move on. You will forfeit any rent credits and purchase option deposit as a result.
Can I make improvements to the house?
Yes! We ask that you consult us before any major improvements however making improvements is a great way to add value to your new home.