For individuals dreaming of homeownership but facing barriers such as insufficient down payment or credit challenges, rent to own programs offer a viable alternative.
Rent to own provides an opportunity to rent a property with the option to purchase it in the future, bridging the gap between renting and homeownership.
In this blog post, we will explore how rent to own programs work, who can benefit from them, the application process, and the advantages they offer for aspiring homeowners.
What is Rent to Own?
Rent to own is a housing arrangement that allows individuals to rent a property for a specific period, typically ranging from two to five years, with the option to buy the property at a predetermined price at the end of the lease term. A portion of your monthly payments goes towards building equity, which can be used as a down payment when exercising the purchase option. And if credit was your barrier to obtaining a mortgage, you can work to repair your credit during the rental term.
Who is a Good Candidate for Renting to Own?
Rent to own programs are ideal for individuals who have a steady income but may face challenges in meeting traditional mortgage requirements.
Minimum income and down payment requirements vary depending on the program and location however typically:
At least 3-4% of the purchase price is required as an initial down payment, and;
Income must be equal to 20-25% of the purchase price of the home
While Rent to own operators can work with people with all sorts of credit including credit that is bruised or people who have been through bankruptcies or consumer proposals, they do not typically work with people whose bankruptcies or consumer proposals have not yet been discharge.
That said, if you are in an active bankruptcy or consumer proposal and you have a desire to own a home in the future, it can still make sense to connect with a rent to own company as they can help you put together a plan so that you can hit the ground running once your bankruptcy is discharged.
The Application Process
The application process for a rent to own program typically involves a few steps. These may include completing an application form, providing documentation of income and financial history, undergoing a credit check, and meeting with program representatives for an interview.
At Hello Homeowner, we start with a brief phone call where we discuss your current financial and credit situation. This gives us a good idea as to whether renting to own could be a good option for you today, and/or if there are things you can work on to prepare for a rent to own program in the future.
If you aren't quite ready yet, we provide guidance on what you need to do to get prepared.
If however it does look like you are ready for a rent to own program, we then ask you to provide documentation to support your income and financial situation.
Our credit team then reviews your file to determine how much you could be approved for and what timeline would be best for you. We also look at your file first to see if getting a mortgage might be an option for you in which case we would recommend getting a mortgage vs renting to own.
After your file review, we will meet with you over a virtual video call to review your file together and present our findings and proposal including:
Approval Amount
Conditions of Agreement
Plan & Goals
We give you an opportunity to ask questions and offer you time to review the material on your own.
If you choose to move forward, you would then be able to go out with a realtor to find a home that meets your approved criteria!
The Legal Documents - For Your Protection! Once it's determined that you qualify for the program, you should have the opportunity to review the legal documents that form the Rent to Own Agreement.
This includes the Lease Document as well as the Option to Purchase Agreement.
In Ontario, the Lease Document is the Standard Ontario Lease and it simply outlines how much the monthly rent amount will be as well as any other conditions of the agreement.
The Option to Purchase Agreement is unique to the Rent to Own program and it outlines the terms and conditions around your legal right to purchase the property.
Two important pieces that should be included in this agreement are:
The date that you will purchase the property in the future
The price that you will purchase the property for in the future
The agreement may include other sections such as Options to Extend or Options to Purchase earlier than the agreed upon date.
While it may be exciting to know that you are accepted into a program, it's extremely important that you review the contracts in detail and have a full understanding of them to ensure you are protected and setup for success.
You should always have the opportunity to review the documents with a lawyer of your choice, if you so choose as well.
The Process While in a Rent to Own Program:
Once accepted into a rent to own program, you will be able to go out on the market with a realtor to find a home that meets your approved criteria.
We will purchase the home on your behalf and you can move in right away.
You will make 2 payments each month - one goes towards rent and the other goes toward your option consideration which is credited toward your future down payment.
Typically, you are responsible for maintenance and repairs including lawn care and snow removal and other small maintenance items on the home. The idea is that you are a homeowner in training so you will take care of everything just as you would as a homeowner.
Simply continue to make your payments on time and in full, and follow through with any other plans that the rent to own company provided to get you mortgage ready, and you will be ready to exercise your option to purchase at the end of the term!
How Rent to Own Helps People Get into Homeownership
Rent to own programs can be the bridge to homeownership that can benefit many people.
These benefits include:
Moving into a home that you will purchase in the future - no more worrying that your landlord will move in or renovate the home. You can rest assured that you can purchase the home at the end of your rental term.
Build equity over time through monthly payments - In this market, it can be challenging to save up enough for a down payment and all the associated closing costs. Through renting to own, you have a concrete plan to accumulate the required down payment while living in a home that you will purchase in the future.
Providing an opportunity to improve credit scores - Renting to own provides the opportunity to improve your credit score while living in the home you will purchase in the future. Your rent to own company should consider your credit situation and develop a custom plan for you to improve your credit during your rental term.
Locked in future purchase price - No more chasing the market! With a locked in future purchase price you know exactly how much you need to save for your down payment. You have a target that you can confidently work toward.
Interested in Renting to Own but not sure if it's a good fit for you?
That's okay!
Reach out to us today and we'd be happy to hop on a call to discuss your financial and credit situation to see if renting to own could be a good option for you.
Email us at hello@hello-homeowner.com or fill in our application at www.hello-homeowner.com/apply.
We are looking forward to hearing from you and helping you on your journey toward homeownership.
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