Frequently Asked Questions for Tenant Buyers
What is Rent to Own? Who is it for?
What is the difference between Rent to Own and Straight Rental?
You have an immediate interest in the property in the form of an option to purchase agreement. Also, your initial down payment plus monthly option premiums will be saved for you, which will become your down payment when you purchase the home at the end of the term. You are also considered the “Owner” when you move in and have the freedom upgrade the house to make it your own.
What are the advantages of Rent-to-Own?
* Very little initial out of pocket money to get started on the path to home ownership.
* You will earn monthly credits towards your down payment.
* Any improvements that you make on your home will increase the value above and beyond your final price. That increase in the home’s value is yours to keep because your price is locked in.
* Move into your dream home now instead of waiting until you can qualify for a mortgage.
* A team dedicated to consult with you to help you improve your credit score so that you can obtain proper financing when you exercise your purchase option at the end of the rent to own term.
Will we be given a maximum price when looking for a property?
Yes, the approval amount is calculated based on your total Gross Household Income, total monthly debt, their mortgage experts will calculate your DSL (Debt Service Limit), GDS (Gross Debt Service ratio) and TDS (Total Debt Service ratio) and give you a max budget.
Do I get a chance to pick my home?
You are involved in the entire process and will work with one of our experienced Rent to Own Realtors to find the home you want. Price and value are important, but we also look at many other factors including appreciation, location etc, we’d like you to find a good house in a good neighbourhood.
Who pays for home inspection?
You will be responsible to pay for the home inspection which normally costs $350 to $400.
I have bad credit, will I qualify?
The Investment company specializes in working with people who have bad credit. They assess whether your financial circumstances can be repaired to ensure that you could qualify for a conventional mortgage (20% down payment) or even a high ratio mortgage (5%-10% down payment) when you are ready to purchase the property at the end of the lease term.
How much is the monthly rent?
Rent is based upon two parts: a base rent based on average market value + a monthly credit that is added to the rent to ensure that you (the tenant/buyer) have built a down payment of usually about 8-10% when your term ends, and it is time for you to buy the home. Investors are flexible in that they can look at past bankrupt or consumer proposal clients, as well as imperfect credit histories. Depending on different situations, you are required to have between 5% to 20% down payment to qualify for the mortgage at the end of the rental term. The lease time (2 to 3 years, or even more) is dependent on a few factors, like credit history, accumulated down payment, verifiable household income, etc, their risk assessment team will give you a full analysis.
Will my monthly rent increase every year?
No, the monthly rent is fixed for the duration of the rent to own term. Your rent never goes up!
Do you need to approve the house that we want to Rent-to-Own?
Yes, it is in the best interest for you and for the investors purchasing the home on your behalf. The Investment company will complete a full analysis on the property to ensure that it will have good value in the future.
Who owns the house while I Rent-to-Own?
An investor/lender will purchase your Rent-to-Own home for you while you repair your credit and build your down payment, all while living in the home for a set term. You are legally protected through your purchase option agreement to become the owner once you successfully complete the program.
Do I need an upfront down payment? How much will that be?
Yes, you must have an initial minimum upfront down payment of $10,000 which is typically 3% to 5% of the price of the home. This deposit will be returned to you to form a part of your down payment once you are successful in completing the program. Some people may need to put more depending on risk factors such as self-employment.
How much down payment will I have at the end of the Rent-to-Own term?
This program is developed to ensure that most clients can build up at least 8-10% down payment through monthly option premiums and initial down payment. This will be your 6-8% down plus 2% for your closing costs at the end of the Rent-to-Own program. 20% traditional down payment may be required for some clients. Some clients could be qualified for 5% down payment plus 2% for the closing costs depending on your credit situation.
How do you determine the buyback price of the house?
The Investment Company uses an average appreciation value based on historic market values of similar homes in the last 3-5 years to calculate the Future Purchase Price. For the last few years, though, the market actually has been performing extremely well at 10%, even 15% + in most areas. All deals have been structured between 3%-6%, which offers flexibility given that the market has been doing much better than that over the last few years. Anything over and above your locked in rate in appreciation is yours to keep giving you a chance share in the equity of the home,
How do you determine the Rent to Own term?
The Investment Company determines the Rent to Own term based on the client’s credit situation, amount of down payment, and time needed to repair your specific situation. They want to make sure that you will be successful in getting a mortgage at the end of the term!
Who is responsible for maintenance and repairs?
You will be responsible for any repairs and maintenance of the property as any other home owner would. You will benefit from any improvements that you decide to make that may increase the value of the home once you exercise the option to purchase. You are also responsible for snow removal and lawn cutting
Who is responsible for utilities?
You will be responsible for paying all utilities which can include electricity, gas, cable TV or internet service, hot water tank rental, etc.
What type agreements are in place to protect me? Do I need a lawyer?
The Investor will use a Lease Agreement and Option to Purchase Agreement that have been drafted by real estate specific legal professionals in order to protect your deposit, monthly option premiums and right to purchase the home. We do recommend that you ask your lawyer to take a look.
What is a lease agreement?
The Lease agreement states the responsibilities of the tenant/buyer and the investor. It will include the length of the term, the monthly payment, as well as all the details regarding the use and maintenance of the home.
What is an option to purchase agreement?
The option to purchase agreement is a document that outlines your exclusive option to purchase the home at the end of the term It will include your initial deposit, and monthly option premiums and future purchase price in the agreement.
Will I need tenant insurance?
The investor will purchase the property insurance, but you will need content insurance which covers certain items inside your home such as personal belongings, etc. as well as liability insurance.
What happens if I cannot buy the house at the end of the lease?
The program is structured so that you should qualify for the mortgage at the end of the Rent to Own term. There are few options should you be unable to qualify for a mortgage by the end of the program. Depending on the situation, the investor may choose to renegotiate an extension of the term for an additional year. This could give you another opportunity to correct any issue(s) that may still be stopping you from qualifying for your own mortgage.
What if I decide not to exercise my option to purchase?
In extreme cases, if you decide not to exercise your option to purchase you will lose your initial deposit and monthly option premiums which can add up to thousands of dollars, although this program if followed is built for success.
Will You Really Give Me Personal Help?
Someone will respond to investor and tenant inquiries within 4 hours whenever possible. They make detailed notes about all of the tenants and investors they speak with, and they do follow up to make sure things are moving along.
How am I protected?
You will work in person with a qualified Realtor to understand everything before making any kind of formal commitment. You are encouraged to review all paperwork with a lawyer.
What areas should we be looking for?
Though you are not limited to where you can purchase your home, we suggest looking in areas such as the GTA and surrounding area, and typically in locations where homes may still be undervalued, like Durham Region eg. Oshawa, Courtice, Clarington, Bowmanville, Newcastle, Lindsay, Peterborough, Cobourg, Lindsay, Newmarket, Barrie, Kitchener, and London etc. The typical home purchase price is $350,000 to $500,000. It is easier to structure a rent to own deal in this range and more affordable for the tenant/buyer. The Investors are open to home values over $500,000+ for those who qualify.