Rent-To-Own can be a great way to get into a home today, even though you may not be able to qualify for the mortgage quite yet; this can be ideal for clients who are self-employed, recently graduated or new to the country, or who have bruised credit and similar challenges.
The most basic description of Rent-To-Own is that you enter into a home as a renter, and over the term you will pay an established rent amount in addition to savings that increases your down payment. The idea is that you will exit the program with a higher down payment, and will have had the opportunity to address issues of credit, job tenure, income reporting, PR status, etc. as appropriate to be mortgage-ready at exit. Beyond this basic outline, there are no established parameters that are consistent across all Rent-To-Owns.
Not all programs or providers are created equal, so it's important that you know how to filter through the options and find a reputable company, then to know what questions to ask when it's time to dig deeper. For a list of recognized members under the Canadian Association of Rent-To-Own Professionals (CAROP), and to gather some general information about the industry, check out their website at
https://www.carop.ca/
When considering a Rent-To-Own program, there are a number of important factors to consider:
- Service and coverage areas - some providers will only be available in certain developments, cities, provinces, etc. and clients must ensure that their target area is within that range
- Income and affordability criteria - Top purchase price will generally be 4-5x your gross household income, and reaching beyond that can dramatically decrease your chances of a successful program
- Starting down payment - This varies widely, often between 0-10% of the purchase price, and qualified sources for the down payment can be different across providers
- Underwriting Integrity - The collection of relevant documents such as income verification, credit reports, etc. is a logical and necessary part of proper review. If this is not completed diligently, then it can undermine the process of getting you mortgage-ready on the selected home
- Contracts and Tracking - Proper contracts are critical, as certain structures or terminology can immediately disqualify a Rent-To-Own exit from most mortgages. Contracts need to be done properly, down payment and savings tracked a certain way to be approved as down payment funds, and you should be encouraged to have contracts reviewed by a lawyer
- Support and Guidance - Getting mortgage-ready by the end of your Rent-To-Own program takes work and discipline on your part, but you're much more likely to be successful with a supportive program and coaching. What does the provider offer to help you be ready?
- Protections when things go wrong - Some programs have rigid rules in which you forfeit the full down payment and savings if things go wrong, while others have varying degrees of protection to help you maximize your benefits (or minimize your losses) even when things don't go accordingly to plan
- Accessibility and Customer Support - As with all the important things in life, you want to know that you're able to reach a real person with questions, request guidance, or to support you through issues as needed
Being informed as you enter into a Rent-To-Own program will help ensure that you know who you're working with, are being lined-up for success, and have the tools and support to become a homeowner when you exit.