What is Rent To Own?  How does it work.

For clients who cannot qualify to get a mortgage to purchase a home, the Rent to Own Program maybe the solution for them.  The program allows the client to enter into a contract with an real estate investor where they move into the property they want to buy and pay the investor rent until they are ready to purchase the property form the real estate investor.  Here is an example.

A client has a 5% or even 10% down payment to purchase a home however due to some credit issues the client does not qualify for the mortgage.  The client or clients have the income to carry the mortgage but cannot meet the credit qualification guidelines.  The usually options to the client would be to either get a co signer to help qualify for the mortgage, come up with a much larger down payment or wait 1 to 3 years to fix their credit profile so they meet the credit requirements.

A new option is The Rent To Own Program.  A real estate investor will work with the client and buy the property the client wants.  The client does have to have the income etc to support the mortgage payments and be able to carry the mortgage at a future date.  In other words the client cannot expect the real estate investor to purchase a property the client cannot afford.  As part of the contract the client agrees to purchase the property back from the investor at a future date for a set price.  Usually the term is 1 to 3 three years depending on how long it will take for the clients to get their credit profile fixed.  Until then the client lives in the property as their own.  This beats paying rent in a property you have no control over with no future value.

Some of the main conditions associated with The Rent To Own Program are the client pays a deposit between 2.00% to 4.00% to the investor which is returned on closing of the contract.  A portion of the rent payment is held back and given back to the client to help with down payment or closing costs on closing of the contract.

Some of the main benefits to the client are they get to move into their new home now rather than later.  A portion of the rental income they are paying will be paid back to them so they are saving for a larger down payment or closing costs.  If the property increase in value above the set future purchase price at the end of the contract, that increase in value belongs to the client.  The contract future purchase price cannot be changed.

For more information on rent to know please contact me at rclancy@mortgagealliance.com or call me at 416 899-1467.